From the Americas to Europe, to Asia and even to Sub-Saharan Africa, multinational corporations are flourishing. In 1990, there were only about 3,000 true multinationals; today, according to the “World Investment Report 2011” by the United Nations Conference on Trade and Development, there are more than 100,000, with more than 892,000 subsidiaries.
However, as increasing numbers of companies around the world focus a large portion of their growth plans on global expansion, they often encounter unanticipated talent management challenges. Rapidly changing and restrictive labor laws can present barriers to moving people from one region to another or to terminating employees, even for poor performance. Further, performance management policies and motivational theories that are successful at corporate headquarters may undermine operations in parts of the company a continent away.
HR needs to provide the guidance essential to enable global expansion from a talent perspective. In addition to their traditional areas of expertise in policies, programs and technologies, HR executives also must have considerable knowledge about local customs, labor markets, workforce legislation and union agreements across every nation where their company does business.
According to the 2012 Growing Global Leaders survey from the Accenture Institute for High Performance 35 percent of HR executives said “managing cultural diversity” is critically important. Executives were more concerned, however, about how to bring people together across borders. Forty-seven percent of survey respondents listed enabling cross-border collaboration as critical, while 52 percent said ensuring that employees are responsive and able to get things done in a timely manner is important.
Less Redundancy, More Agility
Globalization strategies generally follow a predictable course when it comes to organizational structure. As companies expand beyond their original markets, they first move from a structure with a dominant global headquarters to one that replicates essential functions such as marketing, sales, distribution and manufacturing within each country of operation.
Yet a regional or national focus often results in fragmentation and redundancy. By giving each region the ability to pay, reward and develop people differently, HR functions may compromise efficiency rather than enable it.
Many multinational executives in the current phase of corporate globalization are combining the benefits of globally consistent policies on the one hand and local relevance on the other. In other words, they have an HR approach that is both super global and super local.
When it’s better to have consistent and standardized operations — for HR transactions, for example, or for corporate compliance — a company needs global policies and services. But when the needs and preferences in specific markets need to dominate — for instance, in sourcing talent or in motivating and rewarding people — a company needs to be local in its focus.
The following are areas to consider in balancing global and local needs.
Create more agile HR operating models. HR models that leverage shared services platforms can help a company maintain a good global-local balance.
Take the case of London-based Diageo, a beverage company. Diageo has offices in 80 countries and a presence in some 180 markets. The company continuously evaluates market growth opportunities while also protecting its core business. It has been especially innovative in redesigning the HR operating model it needs to execute this strategy by creating a more agile workforce and responsive business.
One essential part of this work involved becoming super global — defining consistent and standardized processes and consolidating transaction processing to create HR services flexible enough to adapt as the company grew. Diageo also sought to create the appropriate types of HR operating models for different markets; some markets are well developed and big enough that shared services across multiple HR functions would meet a range of economic and customer service requirements.
Diageo used a customized shared services model that not only provides more consistent service to employees around the world but also can be quickly adapted to meet unique local market requirements. In seven months, the company had two centers up and running — one in Europe and one in North America — that serve as the virtual hubs for Diageo’s hub and spoke model.
From these centers, HR services can now be provided faster and more consistently to employees. A knowledge repository, for example, helps standardize functions and materials, and helps process transactions consistently and in compliance with local laws.
The centers also help Diageo navigate complex data protection and privacy laws across borders. One of the services made available as part of these new HR capabilities is an electronic employee filing system. This provides greater data security that meets requirements in both the European Union and North America, and it provides easier access to employee information for the service centers to support HR personnel across dispersed locations.
Promote balanced leadership. One of the most profound but also subtle issues companies face as they expand is adopting a global mindset, without presumptions about what region should be dominant. Only 42 percent of the global HR executives in the Accenture survey reported their executive team has a strong global mindset. Even fewer — 38 percent — said their high-potential managers do.
Julian Dalzell, who recently retired after 43 years in HR leadership roles with Royal Dutch Shell and now is on the faculty of the Darla Moore School of Business in South Carolina, said there is cause for concern about whether Western companies are sufficiently prepared to meet global leadership challenges.
People have grown up with presumptions about their own country’s economic dominance, he said, but other centers of power and influence are rising. “Future executives of our companies must now be groomed to operate and lead in that environment, whether it’s in terms of new business management skills or simply the emotional and psychological mindsets needed.”
For a company to execute globally, its governance structures should allow more decisions to be made locally in areas into which it is expanding. The company should create processes and ways of working that encourage innovation at the local level — this is especially critical in industries for which understanding consumer tastes and preferences within a distinct market is important.
Equally important, leaders must be drawn not only from where the company has historically done business, but also from areas where there is significant market potential. Only a little more than one-third (37 percent) of HR executives in the Accenture survey said their executive leadership group reflects the diversity of the company’s global reach.
Leadership development is therefore critical, including exposing future executives to people, policies, laws and norms from different parts of the world. Companies that report having a strong global mindset are significantly more likely than their peers to have formal global leadership development policies and involve participants who are as diverse as their global footprint. As a result, these companies are more likely to believe their leadership development programs are successfully equipping next-generation leaders to take the helm of a global organization.
In some cases, the need for global experience and exposure translates into long-term overseas assignments for personnel. But other creative approaches can be effective as well. At Shell, Dalzell used relatively short-term overseas assignments for employees as a way to meet the needs of different geographies while also developing critically important skills and mindsets in the workforce. At one point, he had 11 people from his HR team, each with less than five years of experience, working overseas on short-term assignments in Singapore, Canada, Holland, Brazil, Turkey, Qatar and Kazakhstan.
The approach was successful for several reasons. More employees were willing to sign up for shorter postings, countries were more willing to grant work visas for that kind of arrangement, and managers had less concern about someone coming into a unit and competing with local talent.
“Plus, an unintended consequence was that our people came home keen to share the incredible experiences they had and what they had learned,” Dalzell said. “So it sparked enthusiasm and energy that we would have had a harder time creating ourselves.”
Enable common technologies and systems. Technologies and information systems also play a key role in an organization’s ability to become super global. Most executives — whether from emerging or developed markets — are pursuing common, global systems for HR information and processing as a means to meet the challenge of conflicting regional policies and systems. Such work, which often also involves establishing shared services centers for the HR function, should also be accompanied by a redesign of HR processes to achieve both consistency and local relevance.
Shell, for example, implemented a single IT system for HR called Shell People that executives credited as a key reason the company was able to move forward with a global business strategy less constrained by governance and policies focused at local or national levels.
The Essential Role of HR in Global Strategies
Shell’s global, consistent platform also changed the way management thought about which talent-related competencies were core and strategic and which were not. For such non-core tasks as payroll processing and benefits management, the goals of efficiency and productivity are better handled through a shared services or outsourcing approach. By streamlining processes and consolidating systems, HR can assume a more strategic role, less encumbered by day-to-day transactional requirements.
When it comes to delivering on global growth plans, senior leadership must be fully on board with the idea that the HR component of the business strategy is more than just a follow-up measure to consider after the advance team has established a staging ground in a new market. HR should be an active participant from the beginning to create the globalization vision.
Companies also need to find the right balance between the common global structures they need to be more efficient and the local innovations and services they need to be credible to the customers they seek to win and the talent they seek to employ.
David Gartside is a managing director in the Accenture talent and organization management consulting practice. Rustin Richburg is a senior director there, and Joshua Bellin is a research fellow with the Accenture Institute for High Performance. They can be reached at firstname.lastname@example.org.