I need the Initial Draft first not the whole paper. I attached the case in pdf file.
Follow the instructions carefully. It is The Global Leadership of Carlos Ghosn at Nissan case in pdf file. It’s run from page 17-28. No Plagiarism. Due in 30 hours.
- Start working on an initial draft due in Week 3 and the final draft due in Week 4.
- Read and analyze the case study on Nissan from the course pack. Instructions will be available on accessing and paying for the course pack. The paper should be 10 pages long with the analysis up to 6 pages and the recommendations up to 4 pages. Recommended Structure is as follows and the APA coversheet and references do not count towards the page limit. It is single spaced and 12-point.
APA Style Coversheet
Introduction (high-level findings of the case study)
As you work through this paper, analyze the following areas (6 pages):Strategic business objective pursued,
The specific types of leadership styles employed,
The challenges faced and results achieved,
The causes of success or failure and
Other areas you consider pertinentRecommendations
Conclusion
References
NOTE: The final draft due later will also use the same above structure except that you will incorporate any feedback that I have suggested in the initial draft.
1.
Global Leadership
20
1
9
-20
20
Under Guidance from Dr. Sriram Rajagopalan
LDR
6
14
5
Northeastern University
Table of Contents
Global Leadership Success Through Emotional and Cultural Intelligences……………………………….
5
The Global Leadership of Carlos Ghosn at Nissan……………………………………………………………….1
7
Gojo Industries: Aiming for Global Sustainability Leadership…………………………………………………
29
Leadership in a Globalizing World……………………………………………………………………………………..
41
Regional Strategies for Global Leadership………………………………………………………………………….
8
5
Rising Costs of Bad Leadership………………………………………………………………………………………..9
9
Learning to Manage Global Innovation Projects…………………………………………………………………
10
3
Global Leadership 20
19
-2020 LDR
61
45
Under Guidance from Dr. Sriram Rajagopalan Northeastern University
2.
Global leadership success through emotional and
cultural intelligences
Ilan Alon, James M. Higgins*
Roy E. Crummer Graduate School of Business, Rollins College,
100
0 Holt Ave-
27
22
, Winter Park, FL
32
78
9,
USA
Abstract Culturally attuned and emotionally sensitive global leaders need to be
developed: leaders who can respond to the particular foreign environments of
different countries and different interpersonal work situations. Two emerging
constructs are especially relevant to the development of successful global leaders:
cultural and emotional intelligences. When considered under the traditional view of
intelligence as measured by IQ, cultural, and emotional intelligences provide a
framework for better understanding cross-cultural leadership and help clarify
possible adaptations that need to be implemented in leadership development
programs of multinational firms. This article posits that emotional intelligence (EQ),
analytical intelligence (IQ), and leadership behaviors are moderated by cultural
intelligence (CQ) in the formation of global leadership success.
D 2005 Kelley School of Business, Indiana University. All rights reserved.
bBut when a prince acquires the sovereignty of a
country differing from his own both in language,
manners, and intellectual organization, great dif-
ficulties arise; and in order to maintain
the
possession of it, good fortune must unite with
superior talent.Q —Niccolo Machiavelli, The Prince
1. Global interaction and interpersonal
relationships
To say that globalization is upon us is axiomatic.
Conducting global, international, and cross-cul-
tural business is a mundane reality for most
contemporary large organizations. Even if your
business is a medium- or small-sized firm, you
have probably experienced globalization through
interactions with global participants that belong
to at least one, or perhaps more, of these four
key categories: customers, competitors, suppli-
ers, or employees. Global business is already a
substantial force in the world’s economy: The
World Trade Organization reported that, in 2003,
international trade comprised
30
% of global GDP.
In their book Race for the World, Lowell L. Bryan
et al. (1
99
9) predicted that, by the year 2029,
80
% of world output would be in global markets.
Thus, while globalization has arrived, the full
extent of its impact on business has yet to be
felt.
0007-
68
13
/$ – see front matter D 2005 Kelley School of Business, Indiana University. All rights reserved.
doi:10.10
16
/j.bushor.2005.04.003
* Corresponding author.
E-mail addresses: ilan.alon@rollins.edu (I. Alon)
8
jhiggins@rollins.edu (J.M. Higgins).
KEYWORDS
Cultural intelligence;
Emotional
intelligence;
Global leadership
success
Business Horizons (2005)
48
,
50
1—5
12
www.elsevier.com/locate/bushor
Copyright 2005 by Indiana University Kelley School of Business. For reprints, call HBS Publishing at (800)
54
5-
76
85
. BH
17
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If growth in international trade continues as
expected and predictions for its eventual size hold
true, global business will see at least a twofold
increase. Such dramatic changes in the conduct of
business require leadership from individuals skilled
in global aspects of business functions such as
marketing, operations, finance, human resource
management, information management, and R&D.
However, global leaders must also be extremely
skilled in the interpersonal conduct of global busi-
ness. This requires emotional and cultural intelli-
gences, the focal points of this article.
Unfortunately, while the need for global business
leaders has never been so urgent, serious deficien-
cies exist in the preparation of corporate managers
as they deal with the interpersonal realities of
global business. In a comprehensive review of the
global leadership literature, Vesa Suutari (2002)
came to the following conclusions:
! Leaders need to develop global competencies.
! There is a shortage of global leaders in the
corporate world.
! Many companies do not know what it means to
develop corporate leaders.
! Only 8% of Fortune 500 firms have comprehen-
sive global leadership training programs.
! There is a need to better understand the link
between managerial competencies and global
leadership.
Similarly, Tracey Manning (2003) summarized the
research of many leadership scholars and found
that multinational companies’ efforts to develop
effective global managers fell far short of the
optimum:
! 85% of Fortune 500 firms surveyed did not have
an adequate number of leaders.
!
65
% felt their leaders needed additional skills.
! One-third of international managers underper-
formed in their international assignments based
on their superiors’ evaluations.
! Organizations have erroneously promoted lead-
ers to international assignments based on tech-
nical and organizational skills.
Ultimately, the negative consequences of wrong
leadership choices are both expensive and well-
publicized. And while the overall picture of global
leadership development indicates businesses are
not pursuing this matter sufficiently, the outlook is
even more bleak regarding the development of
global leaders’ emotional and cultural intelligen-
ces. Although some firms are endeavoring to
enhance the emotional intelligence capabilities of
their leaders, very few have moved to grow cultural
intelligence, as awareness of this important con-
cept is still at an early stage. In this article, we
discuss the concepts of emotional and cultural
intelligences, why they are critical to successful
global leadership, and how they may be developed
in global leaders.
2. A convergence of forces
It is evident that global leadership development
should be a priority for companies that interact
across cultures. Fortunately, how this develop-
ment should proceed is becoming clearer. Several
markers of what we term bglobal leadership skillsQ
are noteworthy. First, there is increasing agree-
ment regarding what it is that good leaders do,
even while management flexibility is assumed as a
given. Inevitably, leadership is contingent on the
factors involved in a particular situation, but we
generally know what good leaders should do or
consider doing most of the time, at least in the
United States. Simply put, leadership is the ability
to turn vision into reality. More specifically,
Robert House and his colleagues defined leader-
ship as bthe ability to influence, motivate, and
enable others to contribute toward the effective-
ness and success of the organizationQ (House et
al., 1999, p.
18
4). Additionally, in 2002, Gary Yukl,
Angela Gordon, and Tom Taber, after reviewing a
half-century of leadership behavior research con-
ducted primarily in the U.S., concluded that
leaders must successfully perform 12 behaviors,
which can be grouped into three broad categories:
task, relationship, and change/innovation (Yukl et
al., 2002). These behaviors are those that leaders/
managers should engage in or consider engaging in
to be successful.
A second marker of global leadership skills is an
emerging focus on leadership at every level of the
organization, which facilitates the creation of a
platform from which to launch a global leadership
development effort. This recognition of the rela-
tionship of system to manager is occurring not just
in the management literature, but in numerous
corporations, as well. For example, IBM, a company
already well known for its strong leadership,
revamped its leadership model in 2002, when newly
appointed CEO Sam Palmisano realized IBM needed
a new model of leadership that was future-focused,
where the company’s customers became clients
(reflecting long-term relationships, not short-term
fixes) and whereby IBM enabled its customers to
brespond instantly at whatever got thrown at themQ
(Tischler, 2004, p.
11
2). As Donna Riley, IBM’s Vice
President for Global Talent, expressed, bIf leader-
I. Alon, J.M. Higgins502
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ship is stuck in the past, we have a problemQ
(Tischler, 2004, p. 112). After a thorough examina-
tion of the situation and various options, IBM in
2004 identified a set of 11 competencies IBM’s
leaders must possess. Among these are being client-
centered, innovative, and environmentally aware,
all on a global basis. These desired competencies
are in addition to, not instead of, more traditional
leadership behaviors (Tischler, 2004).
3. IQ is not the only bintelligenceQ
There is growing recognition that multiple intelli-
gences are required for global leadership. For
example, Ronald Riggio, Susan Murphy, and Fran-
cis Pirozzolo presented a strong case that global
leaders need to possess more than high IQs. In
2002, they asserted that intelligence is a multi-
dimensional construct, that there are several
types of intelligences, and that different kinds
of intelligences are needed for effective, situa-
tional leadership (Riggio et al., 2002). Based on
all evidence available, we suggest at the core of
global leadership (and, hence, the development
of global leaders) are these three intelligences:
(1) Rational and logic-based verbal and quanti-
tative intelligence with which most people
are familiar and which is measured by tradi-
tional IQ tests;
(2) Emotional intelligence (EI), which has risen to
prominence as a determiner of success in the
past 10 years and which can be measured by
EQ tests; and
(3) The most recent addition to our list of
intelligences, cultural intelligence (CI), which
can be measured by CQ tests that are only
now coming into existence.
With respect to cultural intelligence, it is
important to note, as Christopher Earley and
Elaine Mosakowski pointed out in 2004, that there
are two major types. The first is what we call
organizational CI. The second type of awareness,
the focus of our CI examination, is related to
geographic/ethnic culture (Earley & Mosakowski,
2004). For example, when you do business in
Spain, many cultural practices are the same
throughout the country, but doing business in
Bilbao is not identical to doing business in
Madrid or Barcelona because each of these cities
has a different operant culture, each of which
reflects a major Spanish subculture: Basque,
Andalusian, and Catalan, respectively. Even mat-
ters such as bappropriateQ hours of work differ
among these three cultures. The fact that each
subculture is fiercely proud of its heritage can
make for an interesting exercise in cross-cultural
cooperation within Spain, itself. Leaders must be
able to function across and within these various
subcultures.
Robert Rosen and Patricia Digh declared that
bglobal literacy is the new leadership competence
required for business success. To be globally literate
means seeing, thinking, acting, and mobilizing in
culturally mindful waysQ (Rosen & Digh, 2001, p.
57
).
Accordingly, the same authors indicate the two
predictors of success in the global market place
are leadership development across all levels of
business and valuing multi-cultural experiences/
competencies. We suggest that leadership develop-
ment should follow a three-part model: assessment,
education, and experience. With most if not all
aspects of leadership, it is possible to assess a
leader’s skill levels, provide the education that
matches that person’s needs, and then let the
person experience the foreign culture in its organ-
izational or geographic/ethnic specificity. As we all
know, experience itself is a great teacher, and only
in the trenches can a leader begin to fully under-
stand another culture and become functional in it. In
this article, we focus on the two newest of the three
intelligences we believe to be critical to successful
global leadership: EI and geographic/ethnic CI.
4. Developing global leadership EQ
According to The EQ Edge, written in 2000 by
Steven J. Stein and Howard E. Book, research
across 30 mostly professional and managerial
career fields reveals that anywhere from
47
% to
56
% of work/life success is the result of EQ, with
the range being related to job type (Stein & Book,
2000). Even stronger evidence linking EQ to the
success of leaders within the U.S. was noted by
Daniel Goleman, Richard Boyatzis, and Annie McKee
in their 2002 book, Primal Leadership. They found
that the most critical leadership skills in the U.S.
were linked to emotional intelligence (Goleman,
Boyatzis, & McKee, 2002). Their research and the
research of others (such as the Hay-McBer consult-
ing firm) suggest that as much as
79
% of leadership
success in the U.S. results from high EQ. Based on
these and other EQ studies, it would seem that
leaders’ levels of emotional intelligence influence
their behaviors, making them more or less success-
ful. Similarly, organizational CI matters most, at
least in the U.S., when leaders move into or work
with new organizations. Often, a lack of organiza-
tional CI contributes to individual and corporate
failures.
Global leadership success through emotional and cultural intelligence 503
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Emotional Intelligence is crucial to success in
both work and life in general; it is a part of the
biological, evolutionary importance of emotions in
human beings. As Nigel Nicholson, in a Harvard
Business Review article, observed, b. . .for human
beings, no less than for any other animal, emotions
are the first screen for all information receivedQ
(Nicholson, 19
98
, p. 1
38
). When a person receives a
piece of information, it is automatically assessed
from an emotional perspective. Emotional assess-
ment was necessary for survival when man hunted
in small groups, as it initiated bfight-or-flightQ
responses; things are no different today. When
someone receives information, the older part of
the brain still considers a fight-or-flight response.
This phenomenon helps explain why, for example,
when a performance appraisal is conducted, even if
99% of the appraisal is positive, the bevaluateeQ will
fixate upon the negative 1%. To be successful in any
interpersonal activity, one must be aware of one’s
own emotions and be able to manage them, just as
one must also be aware of the emotions of others
and be able to manage any interaction. EQ surveys
simply measure the ability to perform these tasks
across a wide variety of emotional intelligence
skills.
4.1. Assessing EQ
There are three primary EQ skill level survey
devices on the market today, all of which are
paper-and-pencil based. The first two of these are
self-report inventories: the bEmotional Quotient
InventoryQ or EQi and the bEmotional Competence
InventoryQ or ECI, which also has a university
student version, the ECI-U. The EQi was created
by psychologist Reuven Bar-On, who, in 1980,
began a quest to determine what led to work/life
success (Bar-On, 19
97
, 1998). By 1985, he believed
he had found a partial, if not a primary, answer in a
concept he labeled the emotional quotient, or EQ.
Bar-On subsequently developed the EQi survey to
measure EQ, a survey which meets the American
Psychological Association’s standards of legitimate
tests. In The EQ Edge (Stein & Book, 2000), Steven
Stein and Howard Book analyzed thousands of EQi
surveys given to individuals in more than
30
occupations. Two key findings emerged. First, as
noted earlier, their analyses revealed that success
in domestic work/life is between 47% and 56% a
function of a person’s EQ. Second, their research
revealed which 5 of the
15
EQ competencies used in
the EQi were most critical to each job classifica-
tion. The finding that different jobs require differ-
ent competencies has the potential to become a
major factor in job selection. Because some of the
job classifications examined were managerial posi-
tions, the study has this important implication for
leadership: even in the same country, the proper
leadership EQ skill set varies to some degree from
situation to situation.
The ECI was created by consulting firm Hay-
McBer in conjunction with Daniel Goleman. While
the EQi is focused on the psychological under-
pinnings of EQ, the ECI focuses on EQ’s business
applications. In Primal Leadership (Goleman, Boy-
atzis, & McKee, 2002), Goleman and his co-authors
describe a model of how EQ could be used,
especially, by business leaders. One of the major
contributions of this book is the identification of
15
specific EQ competencies, which are grouped into
four overriding domains: self-awareness, self-man-
agement, social awareness, and relationship man-
agement. The first two of these sets of skills are
intrapersonal; the latter two are interpersonal.
What makes these behaviors so useful is the
development of a model that illustrates how each
of these four domains of capabilities sequentially
drives the next. According to this model, a person
must progress from self-awareness to self-manage-
ment, from self-management to social awareness,
and from social awareness to relationship manage-
ment. These domains are essentially hierarchical in
nature: a person cannot usually successfully man-
age relationships if that person is not first self-
aware, successful at self-management, and also
socially aware. Similarly, a person cannot usually
self-manage if lacking self-awareness, nor be
socially aware if self-management is absent.
The third assessment device is the bMayer-
Salovey-Caruso Emotional Intelligence TestkQ, or
MSCEIT (MSCEIT, 2005; What is the MSCEIT, 2005).
The MSCEIT is an emotional problem-solving test, as
opposed to a self-reported inventory. Participants
are asked to solve a number of EQ problems. David
Caruso (2005), co-author of the MSCEIT, indicates
the test examines two tasks for each of the four
following different but related emotional intelli-
gence abilities:
(1) bPerceiving emotions: the ability to accu-
rately recognize how you and those around
you are feelingQ;
(2) bUsing emotions: the ability to generate
emotions and use emotions in cognitive tasks
such as problem solving and creativityQ;
(3) bUnderstanding emotions: the ability to
understand complex emotions and emotional
dchainsT, how emotions transition from one
state to anotherQ; and
(4) bManaging emotions: the ability to intelli-
gently integrate the data of emotions in
I. Alon, J.M. Higgins50
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yourself and in others in order to devise
effective strategies that help you achieve
positive outcomesQ.
All three of these instruments appear to be
viable. The use-values of the three surveys differ,
however:
! The EQi has a substantial psychological back-
ground, meets APA standards for tests, and has
additional supportive research;
! The ECI has a strong, practical business focus;
and
! The MSCEIT focuses on problem solving and does
not involve self-evaluation, as do the other two
tests.
The EQi and ECI surveys allow for evaluations by
others, which helps eliminate subjective biases.
Limited numbers of comparative studies of these
instruments have been performed; in fact, too few
to be useful at this point. As well, since these
three instruments are all essentially bound to U.S.
culture, only limited use of them has been made
outside of the United States. The EQi and MSCEIT
are available through Multi-Health Systems (among
others) and the ECI from the Hay Group.
4.2. Educating global leaders on EQ
Successful leadership development programs incor-
porate conceptual knowledge about EQ with role
playing, case studies, simulations, experiential
exercises, visualization exercises, and practice
sessions that assist people in not just understanding
what EQ is about, but also giving them practice at
the skill. Establishing objectives for change and
feedback sessions on progress are also critical
ingredients for success. It is best to work on only
four or five behavioral changes at a time, focusing
on the lowest-scoring skills. If a leader is using the
ECI survey, the progression from self-management
to relationship management should guide the
leader’s choices for development. Some of this
evaluation can be self-generated, but external
evaluators are very helpful.
4.3. Experiencing improved EQ
There is no substitute for experience when behav-
ioral change is desired. As illustrated later in this
article, this is as true for CI as it is for EI. EQ
improvement logs can be a helpful tool in the
change process: in them, leaders can record their
efforts at improving their EQ. They can keep track
of successes and failures, reporting the actions they
have taken to further their skills. In Stein and
Books’ The EQ Edge (Stein & Book, 2000) and in the
materials that accompany both the ECI and the
MSCEIT, there are suggested exercises, readings,
and other aids to help improve EQ. Although
definitely worthwhile, this is not an inherently
speedy process: it can take up to six months of
steady work on one behavior to permanently
change it. The keys are to accept that mistakes
will occur, have adequate self-efficacy to continue
on despite setbacks, take action to correct mis-
takes, and, finally, learn from that experience.
4.4. EQ and global leadership
One of the difficulties in changing emotional
behavior stems from the dozens of emotional
responses humans experience. In 19
96
, Howard
Weiss and Russell Cropanzano identified six emo-
tions as basic and universal, at least within the
United States: happiness, surprise, fear, sadness,
anger, and disgust (Weiss & Cropanzano, 1996).
While there can be a high level of agreement within
a country or specific national subculture regarding
the meaning of commonly accepted emotions,
many emotions and their cues (both non-verbal
and even some verbal) do not readily translate
across borders.
For example, in a 19
91
Los Angeles Times report,
Emmons (1991) found that, when a group of U.S.
citizens was asked to identify six basic emotions
using pictures of other U.S. citizens’ facial expres-
sions, there was a range of agreement from
86
% to
96%. However, when Japanese citizens were asked
to identify these emotions from the same set of
pictures, their identification registered as accu-
rately only for the emotion bsurpriseQ, with 97% in
agreement. Among the other five emotions, accu-
rate identification levels ranged from 27% to
70
%.
This example begs the question of how high an EQ
someone can have in a culture other than the one
they grew up in. Because the cues to emotions
across cultures vary from being somewhat different
to quite different, CI becomes extremely impor-
tant. CI enables leaders to translate the varying EQ
behaviors of different cultures, and to then choose
a more appropriate EQ action for a specific culture
than the leader might otherwise have chosen.
5. Developing a global leader’s cultural
intelligence
Given the linkage between emotional intelligence
and success, how can one transfer emotional
intelligence to other nations/cultures? The answer
lies in cultural intelligence, which bridges the gap
in the transference of meaning. In 2003, Christo-
pher Earley and Soon Ang claimed that emotional
Global leadership success through emotional and cultural intelligence 505
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intelligence may not transfer across borders if the
symbolism and the ability to respond to the
affective states of others carry different interpre-
tations across cultures (Earley & Ang, 2003). Thus,
in order to be EQ effective, one must also be CQ
effective.
The work of Robert House and his colleagues on
project GLOBE in 2002 illustrates that successful
leadership behaviors differ within various cultures
(House et al., 2002). Accordingly, in order for top
managers to lead their organizations in the
21
st
century, they need to understand the regional and
ethnic cultural diversity of their working environ-
ments and the cross-cultural community of workers
around the world. It is becoming increasingly clear
that leadership behaviors must be adapted to the
cultural variety embedded in the global context.
Increasing globalization across most industries
has prompted observers to pay attention to the
need for augmenting cultural intelligence in work-
ers. For example, Alexander Zakak and Steve
Douvas commented in 1999 on the increasing
globalization of the insurance industry. They stated
that cultural intelligence is a key to business
intelligence and is critical if insurers are to succeed
in foreign markets (Zakak & Douvas, 1999). To
demonstrate their point, they compared Polish and
German markets. Their analysis contained general
information about culture (e.g., values, work ethic,
cultural diversity, and business protocols) and
industry-specific factors (e.g., growth rate, level
of competition, and the relative involvement of
government). Taking into account cultural diversity
and environmental differences, Zakak and his
colleague suggested that U.S. insurers would be
wise to use a strategy of acquiring a local insurer,
developing complex products, and using a locally
trained workforce in Germany, and creating joint
ventures, developing simple products, and hiring
expatriates to train the local employee base in
Poland. In this way, the authors tailored decisions
to fit culture-specific needs.
Andrew Holmes, a computer industry commen-
tator, wrote in 2002 about the role of information
technology (IT) project managers, suggesting that
cultural intelligence is a new skill dimension to
effective IT project management and the ability to
affect change in heterogeneous locations and
organizations (Holmes, 2002). Poor cultural intelli-
gence leads to stereotyping, unnecessary conflict,
delays, and leadership failure. Unfortunately, no
systematic approach to developing cultural intelli-
gence was evident in practitioner-based articles.
As the term bcultural intelligenceQ only came into
use in recent years, few academic conceptualiza-
tions currently exist. Perhaps the most systematic
and contemporary approach to the study of cultural
intelligence was published in a monograph, Cultural
Intelligence: Individual Interactions Across Cul-
tures, by P. Christopher Earley and Soon Ang, who
defined cultural intelligence as bA person’s capa-
bility for successful adaptation to new cultural
settings; that is, for unfamiliar settings attributable
to cultural contextQ (Earley & Ang, 2003, p. 9). In
like manner, in 2004, Brooks Peterson defined
cultural intelligence as the aptitude to use skills
and abilities appropriately in a cross-cultural envi-
ronment (Peterson, 2004).
According to Earley and Ang, cultural intelli-
gence is distinct from social and emotional intelli-
gences in that it requires people to switch national
contexts and rely on their ability to learn new
patterns of social interactions and devise the right
behavioral responses to these patterns:
bIn a new cultural setting, familiar cues are largely
or entirely absent (or present but misguided), so a
common attributional and perceptual frame cannot
be relied on. In this case, a person must develop a
common frame of understanding from available
information, even though he or she may not have
an adequate understanding of local practices and
norms.Q (Earley & Ang, 2003, p. 61)
The authors cite numerous examples of individ-
uals who possessed social, intellectual, and emo-
tional intelligences, and were successful in their
own country’s environment, but were unable to
transfer these skills to a different country’s setting.
The reason: they lacked cultural intelligence.
Alternatively, Lynn Offermann and Ly Phan sug-
gested in 2002 that cultural intelligence is ba meta-
intelligence, encompassing a variety of forms of
intelligence (including the traditional analytical
skills) and enacting them outside of the frame of
reference in which they were developedQ (Offer-
mann & Phan, 2002, p. 191). Emotional intelli-
gence, therefore, is essential for promoting better
cross-cultural interaction.
6. Global demands and cultural
intelligence
How, then, does CQ facilitate effective global
leadership? In 2003, Tracey Manning wrote that
the need for cross-cultural effective leadership is
immediate and widespread, and suggested that
global competence with specific reference to the
ability to manage increasing cultural diversity is the
precondition for effective global leadership (Man-
ning, 2003). After in-depth, face-to-face interviews
with CEOs of more than
75
companies in
28
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countries and a survey of 1000 senior executives
around the world, Robert Rosen and his colleagues,
in their 2000 book, Global Literacies: Lessons on
Business Leadership and National Cultures, make
two discoveries: first, that global literacies are the
cornerstone of leadership universals and, second,
that the more economically integrated the world
becomes, the more important cultural difference
becomes (Rosen et al., 2000). Cultural literacy (the
ability to value and leverage cultural difference) is
key among the global literacies.
Rosen and his colleagues’ conception of cultural
literacy is similar to Earley & Ang’s (2003) concep-
tion of cultural intelligence, and provides the link
between this form of intelligence and top manage-
rial and leadership success in the global arena.
Offermann & Phan (2002) offer further evidence of
this link by showing that cultural congruence
between leader and follower is related to superior-
subordinate relationships, level of follower satisfac-
tion, and work effectiveness. As with the emotional
intelligence construct, we divide the discussion into
assessment, education, and experience.
6.1. Assessing cultural intelligence
The assessment of cultural intelligence depends in
part on its conceptualization. Little has been
published on the construct of cultural intelligence
and even less on its measurement. This is a fruitful
area for future researchers, who can follow the lead
of analysts such as Earley & Peterson. In 2004, they
reviewed and evaluated the available assessment
methods for cultural intelligence, which included
paper-and-pencil inventories, role play exercises,
behavioral assessment centers, self monitoring
scales, cultural shock inventory, and intercultural
communication inventory tests (Earley & Peterson,
2004). In turn, the authors proposed a CQ educa-
tional and learning model which consists of three
facets: meta-cognitive (learning strategies and
cultural sense making), motivation (cultural empa-
thy and self-efficacy), and behavior (acceptable
behavior in culture and mimicry). In a 2004 follow up
article published in the Harvard Business Review,
Earley and Elaine Mosakowski provide a self-scored
diagnostic tool for measuring cultural intelligence
that consists of three components: cognitive, phys-
ical, and emotional (Earley & Mosakowski, 2004).
This tool, however, is rather primitive and has not
been, to our knowledge, subjected to empirical
validity tests.
Another assessment instrument that shows some
promise is the Cross-Cultural Adaptability Inven-
tory Test, developed by Colleen Kelly and Judith
Meyers (Kelley & Meyers, 2004). It is distributed
through the Pearson group, which sells a number of
tools to help companies recruit, select, track, and
manage employees. The test is designed to assess
the ability of the test taker to adapt to different
cultural settings and interact with people from
other cultures, which are skills key to successful
foreign assignments and leadership success in a
cross-national setting. The 50 questions in the
assessment instrument are factored into four
dimensions of cultural intelligence: emotional
resiliency, perceptual acuity, flexibility and open-
ness, and personal autonomy. Comparisons
between people and between factors are relevant
for developmental processes, as they allow the
test taker and/or the evaluator to assess cross-
cultural strengths and weaknesses. Using a sample
of 112 individuals (
35
employees of a U.S.-based
corporation and
77
undergraduate students), a
1998 study by Amy Montagliani and Robert A.
Giacalone found that the ability to adapt cross-
culturally is positively related to impression man-
agement tendencies and suggested that both will
have a positive impact on the ability to succeed in
global leadership (Montagliani & Giacalone, 1998).
Finally, another method of cultural assessment is
now under development by Richard Lewis and Duke
University, although it is not yet commercially
available. The method uses a questionnaire based
on Lewis’s book, When Cultures Collide, to assess
an individual’s type, and then allows the individual
to compare his/her individual socio-type with the
culture in question along a variety of dimensions.
This test allows trainees to focus on their particular
socio-type in the context of the host environment.
6.2. Educating for cultural intelligence
In an effort to educate managers on recognizing
cultural differences, companies can send them to
formal education programs, such as ones which
result in an MBA degree, or sponsor global educa-
tional initiatives. Companies may also provide
managers with books on a country, language
education, mentoring, and so on. Regardless of
what other steps may be taken, managers should be
presented with cultural awareness case studies,
and then be taught how appropriate cross-cultural
behavior leads to more satisfactory solutions. Role
plays, simulations, and other experiential activities
are especially useful in building this awareness.
Furthermore, there are books (including one edited
by Ronald E. Riggio and colleagues) and articles
available on differing analytical cultural frame-
works, many of which focus on the context of
appropriate leadership behavior. Thus, by learning
of these models, the leader is better able to adapt
Global leadership success through emotional and cultural intelligence 507
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to appropriate modes of behaviors in the host
market.
As a practical and individualized educational
method, Peterson (2004) has suggested that
cultural intelligence can be gained by plotting a
trainee’s cultural framework with those of other
national origins, using a number of key cultural
dimensions such as equality/hierarchy, direct/
indirect, individual/group, task/relationship, and
risk/certainty. An awareness of self in relation to
profiles of different cultures can help develop an
appreciation for the differences, the potential
for conflicts, and the cultural bfitQ between one’s
embedded socio-cultural type and model socio-
cultural types in the relevant nation. This
approach is similar to Lewis’s yet-to-be-released
assessment method, but uses established criteria
from the analytical frameworks mentioned
above.
Although these frameworks allow the learner to
understand central tendencies in certain cultures,
the models have been criticized for reductionism,
oversimplification, and ethnocentrism. The com-
plexities of cultures, even those which seem
similar, are immense. For example, reporting in
2002 on one of the project GLOBE studies, Felix
Brodbeck, Michael Frese, and Mansour Javidan
observed several distinct differences between
former East- and West-German managers with
respect to GLOBE cultural factors (Brodbeck,
Frese, & Javidan, 2002). Even more telling was
the fact that Swiss-German managers possessed
two or three very distinct behaviors from those
found in German managers, overall. To comple-
ment these generalized frameworks, we suggest a
specific study of host-market countries with
respect to historical development, art and liter-
ature, socio-economic trends, and language. We
also recommend use of the GLOBE research studies
to gain knowledge of cultural trends and nuances.
Additionally, trainees need to be made aware that
while central tendencies are useful generaliza-
tions, the people they will meet are certain to
differ from generalized norms.
We believe that one cannot fully understand a
culture, and therefore develop cultural compe-
tence, without language proficiency. Language
provides the basis for cultural understanding,
intercultural communication, and possible immer-
sion in a foreign culture. The relationship between
linguistic competency and CQ was also suggested,
but not sufficiently emphasized, by Earley & Ang
(2003). The link between linguistic competence,
cultural intelligence, and leadership, therefore,
needs reinforcement. This notion now comes not
only from industry, but also from government. As
reported in a 2004 Wall Street Journal article,
Chile has begun a nationwide campaign to better
educate high school students in English (Se habla
Ingles, 2004). Furthermore, the same source
reported in 2002 that the United States govern-
ment realized its linguistic deficiencies in Arabic
when faced with a shortage of speakers in the
State Department, the armed forces, and the
Central Intelligence Agency (Byron, 2002). Luckily,
technology is helping facilitate the learning of
foreign languages through the internet.
Cultural intelligence education should also
attempt to instill motivation in the student to
continue learning, experimenting, and trying.
While motivation comes from within an individual,
it can be extrinsically triggered. It is about
satisfying unsatisfied needs that have been recog-
nized either consciously or subconsciously, but
there is also an emotional component involved;
that is, how does the individual feel about satisfy-
ing this need? The larger concern is how companies
can stimulate their managers’ desires to behave in
ways that are culturally intelligent. At the most
fundamental level, companies must recognize the
needs of their managers, and show them that
being emotionally and culturally intelligent will
satisfy those needs. For example, research illus-
trates that people are motivated to behave in a
certain way or learn new skills if they believe
these behaviors and skills will help them in the
future. Corporate trainers should therefore link, in
managers’ minds, the relationship between devel-
oping cultural intelligence and success in their
future career paths, emphasizing the benefits of
learning from different cultures.
Since it has been demonstrated statistically that
success in one’s work life is significantly impacted
by one’s EQ, sharing with managers the numerous
studies available that highlight the advantages of
EQ and CQ will begin an important process. Once
managers see a linkage between generalized
btrainingQ and their own success, the harder work
of applying the information gained in cases stud-
ies, simulations, and role plays can proceed.
Lastly, if you want managers to develop EQ and
CQ, these elements must be included in perform-
ance appraisals, to which everyone attends.
Although work and leadership performance are
affected by a lack of EQ and CQ, those with low EQ
and CQ are unlikely to recognize this in them-
selves, and will fail in foreign cultures unless there
is an individual incentive. The company must draw
attention to what is needed specifically in a
foreign environment, and then must evaluate and
reward or correct behavior related to these
specifics.
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6.3. Experiencing cultural intelligence
Experiential learning is needed to form behavioral
patterns which support cultural intelligence. On a
small scale, corporate trainers can use international
culture experiential learning tools, which allow the
trainee to understand and internalize skills through
experience and reflection. But as reported by
Jeanne McNett and Allan Bird in 2002, experientially
based modules such as Barnga, BaFa BaFa, and
Ecotonus vary in terms of costs, time investment
required, flexibility, trainer skills, complexity, emo-
tional involvement, and level of trainee/trainer
knowledge needed (McNett & Bird, 2002). Cases,
role plays, and simulations are all effective in this
regard. It is also important in educational settings
that participants set objectives for changing their
behaviors, be required to work on changing those
behaviors, and then be evaluated on how well they
have done so during the educational program.
In 2003, Richard Lee asserted the notion of
language as simply a tool to express fixed and
determinate relationships between words and
things was mistaken (Lee, 2003). He further posited
the practice of ignoring disparate connotations in
language when moving across cultures could lead to
gross misinterpretations and failed interactions.
Consider the concept of guanxi in Chinese society.
To simply translate it as bconnectionsQ, while
technically correct, does not and cannot explain
the cultural assumptions, values, historical devel-
opment, and underpinning principles that accom-
pany the guanxi concept. Numerous articles and
books have been written about guanxi and its role
in management and leadership in China, including
one edited by Alon in 2003 (Alon, 2003). No matter
how much research a person might do, Westerners
would be challenged to fully appreciate guanxi
without living and working in that environment. As
an American MBA alum colleague of one of the
authors stated regarding guanxi, after moving to
and working in Shanghai: bReading about it is one
thing. Living it is totally differentQ.
Ultimately, then, there is no substitute for
immersion. This was best stated by Jack Welch,
who noted in a speech to GE employees in 2001 that:
bThe Jack Welch of the future cannot be me. I spent
my entire career in the United States. The next head
of General Electric will be somebody who spent time
in Bombay, in Hong Kong, in Buenos Aires. We have to
send our best and brightest overseas and make sure
they have the training that will allow them to be the
global leaders who will make GE flourish in the
future.Q (Javidan & House, 2002, p. 1)
International rotation programs and interna-
tional practical experience should be included as
ways of developing cultural intelligence.
7. Conclusions
Due to the impact of increased globalization on
business and the factors that lead to successful
global leadership, firms need to embrace emotional
and cultural intelligences as part of their global
leadership development programs. Those that do so
will most certainly be rewarded with improved
levels of global performance.
The implications for the training and develop-
ment units of HRM departments are clear. However,
outcomes for other parts of the organization are
also substantial. Since studies of EQ skill levels and
managerial performance show them to be posi-
tively correlated, companies should think in terms
of selecting employment candidates with high EQs,
especially for leadership positions. Certainly,
developing EQ is both possible but advisable, and
EQ
Emotional
Intelligence
Leadership
Behaviors
Domestic
Leadership
Success
Global
Leadership
Success
CQ
Geographic/Ethnic
Cultural
Intelligence
IQ
Verbal and
Mathematical
Intelligence
Motivation
Elements and Types
of Motivation
CQ
Organizational
Cultural Intelligence
Figure 1 Components of global business leadership success.
Global leadership success through emotional and cultural intelligence 509
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leadership screening for those with high EQs gives
the company a leg up on the competition. Similarly,
when tests are developed that can accurately
determine CQ, these could also be used in the
employee selection process. Since only a few CQ
tests are currently in development, companies
could create their own based on construct validity,
until scientifically valid instruments are available.
Increasing globalization will make EQ and CQ
skills more relevant throughout entire organiza-
tions, and virtually everyone in management and
global business situations will need to focus on
possessing these two skills. The implications for
mentoring, coaching, performance management,
and other leader/manager activities are obvious.
Compensation programs will need to reflect these
skills, possibly through a skill-based pay approach,
but more likely through the incorporation of success
criteria into the performance review reward system.
As we have discussed in this article, there are a
number of vehicles available to assist businesses as
they transform their managers into cross-culturally
skilled leaders. Ultimately, companies that ignore
this challenge will find themselves at a competitive
disadvantage; individuals who fail to develop their
EQ and CQ will likewise suffer. Individuals must go
through the stages of awareness, motivation, and
action/reaction in order to become cross-culturally
skillful, and so must each company.
We acknowledge that successful global leader-
ship is a function not only of leadership behaviors,
but also of multiple intelligences: analytical intel-
ligence (measured by IQ), emotional intelligence
(measured by EQ), and cultural intelligence (meas-
ured by CQ). In this work, we have focused on the
latter two. To be successful, global leaders must
not only understand but also be able to work within
the local culture and display high IQ, EQ, and CQ.
Fig. 1 portrays a conceptualization that links all of
the concepts we have presented. To be a successful
leader in the domestic environment requires IQ, EI,
organizational CI, and motivation. Motivation
includes the elements of motivation (its direction,
intensity, and persistence) and the types of moti-
vation such as the need for achievement, goal
motivation, or the ability to overcome adversity.
These motivation issues are discussed in a sidebar.
The 12 leadership behaviors that are classified into
the three major groupings mentioned in Box 1 are
then used to achieve results, but the success levels
of these behaviors are affected by the sets of
factors on the left side of the model: that is, IQ,
EQ, organizational CQ, and other motivation.
Accomplished appropriately, domestic leadership
success occurs. In summary, at the domestic level
of competition, IQ or analytical intelligence, EQ or
emotional intelligence, organizational cultural
intelligence, motivation and leadership behaviors
contribute to successful leadership. But these
factors do not immediately translate into global
leadership success. Rather, CQ (cultural intelli-
gence) is a moderating variable (Box 1).
Box 1
A company seeking to have its leaders succeed
globally must either select leaders with the appro-
priate skills or develop its existing leaders in those
skills, particularly as they relate to emotional and
cultural intelligences. Furthermore, it must either
choose those who possess high levels of motivation
to be successful leaders or develop those motiva-
tions in them. The abilities to persist in the face of
adversity, endure in frustrating, confusing, and
lonely foreign environments, adapt to different
ways of thinking, and elicit the right responses in
cross-cultural interpersonal relationships are pre-
requisites to successful global leadership. Learning
from experiences, as well as failures, goes a long
In addition to IQ, EQ and Organizational CQ,
there is another factor which contributes to
domestic leadership success: motivation; spe-
cifically, the elements of motivation and the
types of motivation.
Stephen Robbins (2003) identifies the three
key elements of motivation as the direction,
intensity, and persistence of that motivation.
The term bdirectionQ refers to whether that
motivation is aimed in a positive or negative
direction, depending upon the perspective of
the perceiver. For example, determination of
direction might depend on whether or not the
individualTs motivation is good for the individ-
ual, is good for the organization, or both. The
bintensityQ of the motivation describes how
hard a person tries and how compelling the
motivation is at some moment. The
bpersistenceQ of the motivation describes how
long a person can sustain the effort and how
long the intensity of the motivation remains
compelling.
There are many types of motivation. McClel-
land & Winter’s (19
69
) need for achievement is
one of the best known of the motivation-to-
succeed motivators, but success may also be a
function of goal motivation, self-actualization
motivation, the desire to lead or manage, and
other motivational factors. In addition, as Paul
Stoltz (1997) has shown, the ability or drive to
overcome adversity is often an important
motivational factor.
I. Alon, J.M. Higgins
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way in developing cultural and emotional intelli-
gences. Understanding why a positive or a negative
outcome occurred and how to repeat or avoid this
outcome in the future is part of a life-long learning
process. From an organizational perspective,
developing successful global leaders is not just
the task of the human resources department;
rather, the entire organization must be involved
in areas such as mentoring, coaching, role model-
ing, assessment, education, and providing experi-
ence. Only then can the organization expect to
derive the maximum impact from a global business
strategy.
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Further reading
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83
). Frames of mind: The theory of multiple
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Salovey, P., & Mayer, J.D. (1990). Emotional intelligence.
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Stein, S.J. (1999, October 27). EQ-I and success [Slide]. Toronto7
EQ-i Certification program.
I. Alon, J.M. Higgins512
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3.
A07-03-0014
Copyright © 2003 T hunderbird, T he American Graduate School of International Management. All rights reserved.
T his case was prepared by Professor John P. Millikin and Dean Fu, Research Assistant, with assistance from Koichi
Tamura for the purpose of classroom discussion only, and not to indicate either effective or ineffective management.
Th e Gl o bal Lead er sh ip o f
Car l o s Gh o sn at Nissan
“I did not try to learn too much about Japan before coming, because I didn’t want to have too
many preconceived ideas. I wanted to discover Japan by being in Japan with Japanese people.”1
“Well, I think I am a practical person. I know I may fail at any moment. In my opinion, it was
extremely helpful to be practical [at Nissan], not to be arrogant, and to realize that I could fail
at any moment.”
Carlos Ghosn, 20022
Introduction
Nissan had been incurring losses for seven of the prior eight years when, in March 1999, Carlos Ghosn
(pronounced GOH N) took over as the first non-Japanese Chief Operating Officer of Nissan. Many
industry analysts anticipated a culture clash between the French leadership style and his new Japanese
employees. For these analysts, the decision to bring Ghosn in came at the worst possible time because
the financial situation at Nissan had become critical. The continuing losses were resulting in debts
(approximately $22 billion) that were shaking the confidence of suppliers and financiers alike. Further-
more, the Nissan brand was weakening in the minds of consumers due to a product portfolio that
consisted of models far older than competitors. In fact, only four of the company’s
43
models turned a
profit. With little liquid capital available for new product development, there was no indication that
Nissan would see increases in either margin or volume of sales to overcome the losses. The next leader of
Nissan was either going to turn Nissan around within two to three years, or the company faced the
prospect of going out of business.
Realizing the immediacy of the task at hand, Ghosn boldly pledged to step down if Nissan did not
show a profit by March 2001, just two years after he assumed duties. But it only took eighteen months
(October 2000) for him to shock critics and supporters alike when Nissan began to operate profitably
under his leadership.
Background of Carlos Ghosn
Born in Brazil in 1954 to French and Brazilian parents, both of Lebanese heritage, Carlos Ghosn re-
ceived his university education in Paris. Following graduation at age
24
, Ghosn joined the French firm,
Compagnie Générale des Etablissements Michelin. After a few years of rapid advancement to become
1 “Decision-Making and Coordination Structures of the Alliance,” 20 October 1999, http://www.nissan-
global.com.
2 “Nissan President Carlos Ghosn Talks about H is Company’s Recovery,” Nikkei Business, 20 May 2002,
http://nb.nikkeibp.co.jp/Article/11
42
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2 A07-03-0014
COO of Michelin’s Brazilian subsidiary, he learned to manage large operations under adverse condi-
tions such as the runaway inflation rates in Brazil at that time. Similarly, as the head of Michelin North
America, Ghosn faced the pressures of a recession while putting together a merger with Uniroyal Goodrich.
Despite his successes in his 18 years with Michelin, Ghosn realized that he would never be promoted to
company president because Michelin was a family-run company. Therefore, in 1996 he decided to
resign and join Renault S.A., accepting a position as the Executive Vice President of Advanced Research
& Development, Manufacturing, and Purchasing.
Ghosn led the turnaround initiative at Renault in the aftermath of its failed merger with Volvo.
Because he was so focused on increasing margins by improving cost efficiencies, he earned the nickname
“Le Cost-Killer” among Renault ‘s top brass and middle management personnel. Three years later, when
Renault formed a strategic alliance with Nissan, Ghosn was asked to take over the role of Nissan COO
in order to turn the company around in a hurry, just as he had done earlier in his career with Michelin
South America. For Ghosn this would be the fourth continent he would work on, which combined
with the five languages he spoke, illustrates his capacity for global leadership.
Background of Nissan
In 19
33
, a company called Jidosha-Seizo Kabushiki-Kaisha (which means “Automobile Manufacturing
Co., Ltd.” in English) was established in Japan. It was a combination of several earlier automotive
ventures and the Datsun brand which it acquired from Tobata Casting Co., Ltd. Shortly thereafter in
1
93
4, the company name was changed to Nissan Motor Co., Ltd. After the Second World War, Nissan
grew steadily, expanding its operations globally. It became especially successful in North America with
a lineup of smaller gasoline efficient cars and small pickup trucks as well as a sports coupe, the Datsun
280Z. Along with other Japanese manufacturers, Nissan was successfully competing on quality, reliabil-
ity and fuel efficiency. By 1991, Nissan was operating very profitably, producing four of the top ten cars
in the world.
Nissan management throughout the 1990s, however, had displayed a tendency to emphasize short-
term market share growth, rather than profitability or long-term strategic success. Nissan was very well
known for its advanced engineering and technology, plant productivity, and quality management. Dur-
ing the previous decade, Nissan’s designs had not reflected customer opinion because they assumed that
most customers preferred to buy good quality cars rather than stylish, innovative cars. Instead of rein-
vesting in new product designs as other competitors did, Nissan managers seemed content to continue
to harvest the success of proven designs. They tended to put retained earnings into equity of other
companies, often suppliers, and into real-estate investments, as part of the Japanese business custom of
keiretsu investing. Through these equity stakes in other companies, Ghosn’s predecessors (and Japanese
business leaders in general) believed that loyalty and cooperation were fostered between members of the
value chain within their keiretsu. By 1999, Nissan had tied up over $4 billion in the stock shares of
hundreds of different companies as part of this keiretsu philosophy. These investments, however, were
not reflected in Nissan’s purchasing costs, which remained between 20-
25
% higher than Renault’s.
These keiretsu investments would not have been so catastrophic if the Asian financial crisis had not
resulted in a devaluation of the yen from 100 to 90 yen = 1 US dollar. As a result, both Moody’s and
Standard & Poor’s announced in February 1999, that if Nissan could not get any financial support from
another automobile company, then each of them would lower Nissan’s credit rating to “junk” status
from “investment grade”.
Clearly, Nissan was in need of a strategic partner that could lend both financing and new manage-
ment ideas to foster a turnaround. In addition, Nissan sought to expand into other regions where it had
less presence. In March 1999, Nissan President and Chief Executive Officer Yoshikazu Hanawa found
such an alliance opportunity with Renault, which assumed a
36
.8% stake in Nissan, allowing Nissan to
invest $5.4 billion and retain its investment grade status. H anawa was also able to get Renault’s top
management to agree to three important principles during negotiations: Fo
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A07-03-0014 3
1. Nissan would maintain its company name
2. The Nissan CEO would continue to be selected by the Nissan Board of Directors
3. Nissan would take the principal responsibility of implementing a revival plan.
It was actually H anawa who first made the request to Louis Schweitzer, CEO of Renault, to send
Carlos Ghosn to Nissan to be in charge of all internal administration and operations activities.
Why would Renault agree to all of these conditions in this bailout of Nissan? Renault was also
looking for a partner, one that would reduce its dependence on the European market and enhance its
global position. In 1997 85% of Renault’s revenue was earned in Europe, 32.8% of which came from its
domestic (French) market. Renault also had high market share in Latin America, especially Brazil. On
the other hand, Nissan has the second largest market share in Japan and a strong market share in North
America (see Appendix 2, Nissan’ market share). Nissan lacked, however, market share and distribution
facilities in Latin America. By creating the new alliance, Nissan and Renault expected to balance their
market portfolios and become more competitive. Renault wanted a partner that was savvy and estab-
lished in the North American and Asian markets. Furthermore, the merger of Daimler and Chrysler in
May 1998 gave Renault a sense of urgency about finding a partner to compete more effectively on a
global scale. As a result, Renault and Nissan agreed to a Global Alliance Agreement on March 27, 1999,
with Carlos Ghosn designated to join Nissan as COO.
Addressing National Culture Issues
When Ghosn went to Japan, he knew that industry analysts were reasonable in doubting whether a non-
Japanese COO could overcome Japanese cultural obstacles, as well as effectively transform a bureau-
cratic corporate culture. Ghosn was going to have to address several Japanese cultural norms in order to
transform the company back into a successful one.
The following are some of the issues he faced.
Consensus Decision-Making and its Relationship to Career Advancement
Since the war, the Japanese business culture for decades had been producing leaders who were very good
at reaching consensus and working cooperatively within a department (a derivative of the mura-shakai
consensus based society system). Thus, the conventional wisdom in Japan was that conscientiousness
and cooperation were the key elements to maintaining operational efficiency and group harmony. This
paradigm often resulted in delays to the decision making process in an effort to achieve consensus.
As an unintended consequence of the emphasis on conscientiousness, Japanese professionals tended
to avoid making mistakes at all costs in order to protect their career growth. This can result in frequent
informal informational meetings and coalitions (called nemawashi) that occur between professional
departments prior to a decision-making meeting. Through these informal contacts, participants try to
poll the opinions of other participants beforehand in order to test which positions have the strongest
support so that their position is aligned with the position most likely to be influential. Then, at the time
for a meeting with their superiors, participants tender their aligned positions one by one to the ultimate
decision maker with the feeling that if the decision maker agrees to the consensus, then no one indi-
vidual can be identified later for originating a faulty position if that decision results in failure. Rules and
conformity replace process.
In Japan, age, education level, and number of years of service to an organization are key factors
determining how an employee moves up the career ladder. Due to a cultural tenet called Nennkou-
Jyoretu, placing power in the hands of the most knowledgeable and experienced, promotions are nor-
mally based on seniority and education. In practice, the only things that usually thwart these time- and
education-based promotions are performance errors that reflect poorly on the team and any behavior Fo
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4 A07-03-0014
that causes disharmony among team members. When something goes wrong, the most senior person
accepts responsibility while accountability at lower levels is diffused.
This part of Japanese culture had been useful to reinforce control over operations and enhance
quality and productivity. During the postwar period of the company’s growth, it contributed to great
working relationships among everyday team members at Nissan, but these norms, by the mid 1990s,
were actually impeding the company’s decision making. Specifically, these cultural norms severely ham-
pered risk-taking and slowed decision making at all levels. Existing teams of employees routinely spent
much time on concepts and details, without much sense of urgency for taking new action, due in part
to the risks involved with actions that could result in failure. This mindset contributed to a certain
degree of complacency with market position and internal systems at Nissan, undermining the company’s
competitiveness.
In a related cultural issue, as employees became increasingly aware that Nissan was not performing
well, the Japanese culture of protecting career advancement led to finger pointing rather than accep-
tance of responsibility. Sales managers blamed product planning. Product planning blamed engineer-
ing. Engineering blamed manufacturing and so on.
When Ghosn first arrived in Japan, he was surprised to learn that, while most of the employees
sensed that there was indeed a problem within the company, they nearly always believed that their
respective departments were operating optimally. The consensus was that other departments and other
employees were creating the company’s problems. Ghosn also learned that many of the employees of the
company did not have a sense of crisis about the possibility of bankruptcy at Nissan because of the
Japanese business tradition, which implied that large troubled employers would always be bailed out by
the government of Japan. This view was based on the long standing partnership between the govern-
ment and the major businesses to ensure employment and expand exports to world markets. The busi-
nesses for their part were committed to providing lifetime employment to their workers.
Addressing Corporate Culture Issues
Not only were there Japanese cultural norms for Ghosn to contend with, but there were procedural
norms at Nissan, both formal and informal, which were holding the company back. First, once deci-
sions were made at Nissan, the follow-up during implementation was often not effective. This was not
usually the case in other Japanese companies. Second, top management had developed tunnel vision
regarding its strategic focus on regaining market share, as opposed to restoring margin per unit sold.
This was in part due to a focus on what was best for maintaining the company’s size and its employees,
i.e. more units to produce, rather than what was best for customers (newer, better products to meet
market demands) or for investors (higher earnings and higher stock value). Additionally, in an unusual
break from Japanese business culture, there were communication problems between the layers of the
organization. Staffs seemed relatively uninformed of key corporate business decisions, while top man-
agement seemed out of touch with what policy execution issues were present at the middle and lower
management levels.
Ghosn realized that Nissan’s fundamental problem was the lack of vision from management and
the persistent problem of ignoring the voice of Nissan’s customers.3 Furthermore, he identified the
following problems at Nissan:
1. Lack of a clear profit orientation
2. Insufficient focus on customers and too much focus on competitors
3. Lack of a sense of urgency
3 , p. 1
55
, Carlos Ghosn (2001) (August 10, 2002).
4 , p.
26
, (2000) (August 8, 2002).
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A07-03-0014 5
4. No shared vision or common long term plan
5. Lack of cross-functional, cross-border, cross-cultural lines of work.4
Carlos Ghosn’s Philosophies of Management
Despite all of his doubters, Ghosn embraced the cultural differences between the Japanese and himself,
believing fervently that cultural conflict, if paced and channeled correctly, could provide opportunity
for rapid innovation. He felt that by accepting and building on strengths of the different cultures, all
employees, including Ghosn himself, would be given a chance to grow personally through the consid-
eration of different perspectives. The key, he reiterated many times, was that no one leader should try to
impose his/her culture on another person who was not ready to try the culture with an open mind and
heart. In this vein, Carlos Ghosn came to Japan knowing that if he were to start imposing reforms by
using the authority of his company position, rather than work through the Japanese culture, then the
turnaround he sought would likely backfire.
What he did bring with him was three overriding principles of management that transcended all
cultures. And he used these as a backdrop to give employees structure as to their efforts of determining
the proper reforms. These three principles are as follows:
1. Transparency—an organization can only be effective if followers believe that what the leaders
think, say, and do are all the same thing
2. Execution is 95% of the job. Strategy is only 5%—organizational prosperity is tied directly
to measurably improving quality, costs, and customer satisfaction.
3. Communication of company direction and priorities—this is the only way to get truly uni-
fied effort and buy-in. It works even when the company is facing layoffs.
The First Months in Japan and the Cross-Functional Teams
When you get a clear strategy and communicate your priorities, it’s a pleasure working in Japan.
T he Japanese are so organized and know how to make the best of things. T hey respect leader-
ship.
Ghosn5
Even though Ghosn expected that his attitude toward cultural respect and opportunism would
lead to success, Ghosn was pleasantly surprised by how quickly Nissan employees accepted and partici-
pated in the change of their management processes. In fact, he has credited all of the success in his
programs and policies (described below) to the willingness of the Nissan employees at all levels to
change their mindsets and embrace new ideas.
Perhaps it was the way he started that set the foundation among the employees. He was the first
manager to actually walk around the entire company and meet every employee in person, shaking hands
and introducing himself. In addition, Ghosn initiated long discussions with several hundred managers
in order to discuss their ideas for turning Nissan around. This began to address the problems within the
vertical layers of management by bringing the highest leader of the company in touch with some of the
execution issues facing middle and lower management. It also sent a signal to other executives that they
needed to be doing the same thing.
But he did not stop there. After these interviews, he decided that the employees were quite ener-
getic, as shown by their recommendations and opinions. With this in mind, Ghosn opted to develop a
program for transformation which relied on the Nissan people to make recommendations, instead of
hiring outside consultants. He began to organize Cross-Functional Teams to make decisions for radical
5 Middleton, John. ExpressExec.com, http://www.expressexec.wiley.com/ee/ee07.01.07/sect0.html, Acquired
on Internet, 7 August 2002.
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6 A07-03-0014
change. Part of his interest in doing this in-house was to address the motivation and horizontal commu-
nication issues that he encountered throughout the organization. He felt that if the employees could
accomplish the revival by their own hands, then confidence in the company as a whole and motivation
would again flourish. In a sense he was making it clear that he was also putting his own future in their
hands because he had publicly stated several times that the Nissan company had the right employees to
achieve profitability again in less than two years.
Before the strategic alliance occurred between Renault and Nissan, Renault had made an agree-
ment with H anawa to remain sensitive to Nissan’s culture at all times, and Ghosn was intent on follow-
ing through on that commitment. First and foremost, when he chose expatriates to accompany him
from Renault to Nissan, he screened carefully to ensure that those expatriates would have his same
cultural attitudes toward respecting Nissan and the Japanese culture. And, after completing his rounds
of talking with plant employees, he chose not to use his newfound understanding of the problems to
impose a revival plan. Instead, Ghosn mobilized existing Nissan managers by setting up nine Cross-
Functional Teams (CFTs) of approximately 10 members each in the first month. Through these CFTs,
he was allowing the company to develop a new corporate culture from the best elements of Japan’s
national culture.
He knew that the CFTs would be a powerful tool for getting line managers to see beyond the
functional or regional boundaries that defined their direct responsibilities. In Japan, the trouble was
that employees working in functional or regional departments tend not to ask themselves as many hard
questions as they should. Working together in CFTs helped managers to think in new ways and chal-
lenge existing practices.
Thus, Ghosn established the nine CFTs within one month of his arrival at Nissan. The CFT
teams had responsibility for the following areas: Business Development, Purchasing, Manufacturing
and Logistics, Research and Development, Sales and Marketing, General and Administrative, Finance
and Cost, Phase-out of Products and Parts, Complexity Management, and Organizational Structure.
Ghosn had the teams review the company’s operations for three months and come up with recom-
mendations for returning Nissan to profitability and for uncovering opportunities for future growth.
Even though the teams had no decision making power, they reported to Nissan’s nine-member execu-
tive committee and had access to all company information. The teams consisted of around ten members
who were drawn from the company’s middle management.
Ten people could not cover broad issues in depth. To overcome this each CFT formed a set of sub-
teams. These sub-teams also consisted of ten members and focused on particular issues faced by the
broad teams. CFTs used a system reporting to two supervisors. These leaders were drawn from the
executive committee and ensured that the teams were given access to all the information that they
needed. To prevent a single function’s perspective from dominating, team had two senior voices that
would balance each other.
One of the regular members acted as a pilot who took responsibility for driving the agenda and
discussion. The pilot and leaders selected the other members. The pilots usually had frontline experi-
ence as managers.
The CFTs also prescribed some harsh medicine in the form of plant closures and employee reduc-
tions. The CFTs would remain an integral part of Nissan’s management structure. They continue to
brief the CEO; however the team’s missions have changed somewhat. They are to carefully watch the
on-going revival plan and try to find further areas for improvement.
Since the members of the teams were often mid-level managers who rarely saw beyond their own
functional responsibilities, this new coordination had high impact on participants. Specifically, it al-
lowed them to understand how the standard measures of success for their own departments were mean-
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A07-03-0014 7
ingless to Nissan unless they were framed in a way that connected to other departments to result in
customer attraction and retention. In many cases, these mid-level managers enjoyed learning about the
business from a bird’s eye perspective and felt fully engaged in the change process, giving them a sense
of responsibility and ownership about turning Nissan around.
As Ghosn explained in a speech in May 2002, “The trouble is that people working in functional
or regional teams tend not to ask themselves as many hard questions as they should. By contrast, work-
ing together in cross-functional teams helps managers to think in new ways and challenge existing
practices. The teams also provide a mechanism for explaining the necessity for change and for project-
ing difficult messages across the entire company.”6
Ghosn did have one great stroke of luck that helped him reinforce the need for change. At ap-
proximately the same time as he was arriving in Japan, Yamaichi, the major financial house in Japan,
went bankrupt and was not bailed out by the Japanese government. Before that, Japanese employees,
including Nissan’s, did not worry about corporate problems because the government was always saving
the day. This recent turn of events helped to develop a sense of urgency among Nissan employees.
Ghosn, to his credit, used the Yamaichi example whenever he could to continue to motivate his employ-
ees, repeating that their fate would be no different if they did not put all of their effort into figuring out,
and then executing, the best way to turn Nissan around.
Reforms in Full Swing
Within the first six months, the fruit of the CFTs and the increased sense of urgency were apparent.
Management (especially Ghosn) was increasingly perceived as transparent among all levels of employ-
ees, which Ghosn attributed to his respect for protecting Nissan’s identity. In addition, decisions were
being made faster; and there was increased communication and understanding about what was impor-
tant to management. There was, however, very little implementation yet, only planning. H aving re-
ceived from the CFTs the recommendations, which included plant closures and reduced headcount,
Ghosn created and communicated what he called the Nissan Revival Plan (or NRP) in October of
1999. From that point forward he stressed implementation and follow-up, rather than planning and re-
examining decisions. Other CFTs were formed, but the bulk of his efforts lay in ensuring high-quality
execution of the decisions that were laid out in the plan.
Ghosn’s main focus areas included: (1) development of new automobiles and markets, (2) im-
provement of Nissan’s brand image, (3) reinvestment in research and development, and (4) cost reduc-
tion.
Reducing Redundancies
To achieve these results, the closing of five factories and the reduction of 21,000 jobs (14% of Nissan’s
workforce) were planned. Job cuts would occur in manufacturing, management, and the dealer net-
work.7 Since Japanese business culture had tended to have lifelong employment as a principle, Ghosn
endured strong criticism from the media, including being labeled as a gaijin, a foreigner. In addition,
Ghosn fired several managers who did not meet targets, regardless of the circumstances. Many industry
analysts cited his demotion of Vice President of Sales and Marketing in Japan, Mr. Hiroshi Moriyama,
as unacceptable and reckless. They contended that falling revenues and dissipated market share were
6 Ghosn, Carlos, “Saving the Business without Losing the Company,” Harvard Business Review, Vol. 80,
No. 1, January 2002.
7 “Nissan’s Napoleon,” Worldlink, 11 July 2002, http://www.worldlink.co.uk.
8 Barr, C.W. “Get Used to It: Japanese Steel Themselves for Downsizing. Mitsibushi and Nippon Telephone
H ave Added 30,000 Layoffs to Nissan’s 21,000 Announced Oct. 19,” Christian Science Monitor, Nov. 12,
1999.
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8 A07-03-0014
due to Nissan’s aging product line rather than to Moriyama’s performance. In addition to the media and
industry analysts, the government, also expressed concern about the layoffs, but Prime Minister Keizo
Obuchi responded by offering subsidies and programs to help the affected workers.8
Keiretsu Partnerships
As one of the biggest changes of the NRP, Nissan broke away from the Japanese cultural norm of keiretsu
investments. However Nissan maintained customer-supplier relationships with those former keiretsu
partners. As it turned out, Nissan regained billions in tied up capital to use for debt servicing and new
product development without losing any significant pricing advantages. In fact, because Ghosn put
such an emphasis on reducing purchasing costs, Nissan actually began to substantially lower its costs
after the keiretsu investments were sold.
Reorganization
Another major component of the NRP was the restructuring of the organization toward permanent
cross-functional departments, which each serviced one product line. As a result, the staffs gained better
visibility of the entire business process and began to focus on total business success and customer
satisfaction, as opposed to misleading performance goals that could be taken out of context. In addi-
tion, Ghosn also eliminated all advisor and coordinator positions that carried no responsibilities and
put those personnel in positions with direct operational responsibility. Employees were disciplined
much more strongly for inaccurate or poor data than misjudgment, thereby stimulating risk-taking
behavior and personal accountability. Ghosn also made it clear, however, that engineers were not to
reduce product cycle times or do anything that would negatively impact product quality or reliability.
He repeated this often to drive home the point that the way to restore the power of the Nissan brand was
through each individual customer’s experience.
For higher-level staff, Ghosn created a matrix organization to improve transparency and commu-
nication. Within this matrix, he assigned each staff member two responsibilities: functional (e.g., mar-
keting, engineering) and regional (e.g., domestic, North America). The result was that each staff mem-
ber would have two bosses, thereby building awareness of both functional and regional issues. Ghosn
also put an emphasis on cross-functional department members having very clear lines of responsibility
and high standards of accountability. Every report, both oral and written, was to be 100% accurate.
Ghosn is quoted as saying, “Right from the beginning, I made it clear that every number had to be
thoroughly checked. I did not accept any report that was less than totally clear and verifiable, and I
expected people to personally commit to every observation or claim they made.”9
Performance Evaluations and Employee Advancement
Ghosn also put focus on performance by introducing a performance based incentive system. These
incentives included cash incentives and stock options for achievements that could be linked directly to
successful operating profits and revenue. This was a large departure from the traditional Japanese com-
pensation system, in which managers usually received no stock options or bonuses. Under Ghosn’s
compensation system, the highest achievers got the highest rewards. And promotions were no longer
limited to age, length of service, or educational level. For example, a female factory worker who had
only a high school diploma was promoted to be a manufacturing manager based on her strong abilities
to perform the work, relating promotion and salary increase to the ability to perform challenging or
demanding tasks. The promotion of some younger leaders over older, longer-serving employees caused
some problems regarding lack of cooperation. But just as Ghosn saw cultural differences as growth
opportunities, he thought these tests of authority were growth experiences for young managers.
9 Ghosn, Carlos. “Saving the Business without Losing the Company,” Harvard Business Review, Vol. 80,
No. 1, January 2002.
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A07-03-0014 9
The First Three Years
The NRP was achieved in March 2002, one year ahead of schedule.10 One success was a 20% reduction
in purchasing costs. This was a result of achieving a purchase price from kereitsu suppliers that matched
the prices offered by Renault’s suppliers. In addition, the supplier base shrunk by 40% and the service
suppliers decreased by 60%.11
Prior to NRP, seven plants produced automobiles based on 24 platforms. After NRP, four plants
produced automobiles based on 15 platforms.12
The Near Future—Implementation of Nissan 180
On May 9, 2002, Ghosn stated in a speech for an annual business review, “The Nissan Revival Plan is
over. Two years after the start of its implementation, all the official commitments we took have been
overachieved one full year ahead of schedule… Nissan is now ready to grow.” He went on in the speech
to set out the goals for a new plan, one he called “Nissan 180” which would focus on profitable growth.
All new goals were to be accomplished by April 1, 2005. The one in “Nissan 180” represents an addi-
tional 1,000,000 car sales for Nissan worldwide; the eight, an 8% operating profitability with no changes
in accounting standards; and the zero represented zero automotive debt. In addition, the plan called for
an increase of global market share from 4.7% presently to 6.1%, a further reduction of purchasing costs
by 15%, and a significant increase in customer satisfaction and sales satisfaction ratings. In 2002, mid-
career hires (400) outnumbered college recruits (280). Because hiring outside managers might create
animosity among managers within Nissan, this practice reflects a sharp change in hiring decisions.
“We’re moving to a system where it doesn’t matter if you’ve been in the company ten years or
40
years….If you contribute, there will be opportunity and reward,” said Kuniyuki Watanabe, Nissan’s
Senior Vice President for Human Resources.13
Not only was Ghosn aggressively launching the Nissan 180 program to transition out of the
Nissan Revival Plan program, but he was also pushing a new, customer-focused initiative called “Qual-
ity 3-3-3”. He said that this program focuses on three categories of quality: product attractiveness,
product initial quality and reliability, and sales & service quality.
Challenges for Ghosn and Nissan
As Ghosn contemplates the future, he knows that the transformation has really just begun. How could
the momentum and the energy that his employees exhibited be maintained now that they had all reached
the goals that were seemingly Herculean just over two years ago. Would there be a letdown of effort and
results by Nissan employees, or would Ghosn be able to mobilize them to get to the next level of
profitable growth and reestablishment of brand power and market share?
He was aware that current succession plans called for him to return to Renault as its new CEO,
replacing Louis Schweitzer in 2005. Before this could happen, Ghosn would be challenged to find an
adequate replacement who could take Nissan to new heights of accomplishment as planned. Could the
new approaches that had been so successful become part of the Nissan culture without his continued
guidance? Would the success of the NRP spoil the sense of urgency that helped reinforce the need for
change allowing Nissan to slip back into old habits? How could he find someone to carry forward the
need to create a sustainable pattern of customer focus and profitable growth?
10 2002 News, “Nissan Announced NRP Will Conclude One Year Earlier than Planned,” http://
www.nissan-global.com.
11 Nissan 180, “Fiscal Year 01 Business Review,” http://www.nissan-global.com.
12 Nissan 180, “Fiscal Year 01 Business Review,” http://www.nissan-global.com.
13 Raskin, Andy. “Voulez-Vous Completely Overhaul This Big, Slow Company and Start Making Some Cars
People Actually Want Avec Moi?” Business 2.0, January 2002.
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Appendix 1 Summary of Results of NRP
The turnaround at Nissan was phenomenal, with the following statistics:
• From seven out of eight years of operating losses to profitability within the first 12 months. Since 1999,
Nissan has shown four consecutive semi-annual operating profits, and the year 2001 was marked by the
best-ever, full-year earnings at Nissan. The current operating margin is 7.9%, over 3% greater than commit-
ted to in the NRP.
• Net automotive debt is the lowest it has been in 24 years (down from $10.5 billion to $4.35 billion).
• The company developed eight new car models to be launched by late 2002/early 2003, including the award-
winning, revamped Altima, and the new 350Z.
• Supplier costs were reduced by 20%, as per the NRP, mainly through sourcing and other strategies to
minimize exchange rate issues, as well as the reduction of the number of parts suppliers by 40% and the
number of service providers by 60%.
• Five plants have been closed, according to the NRP.
• Headcount was reduced by 21,000, according to the NRP, mainly through natural turnover, retirements,
pre-retirement programs, and by selling off non-core businesses to other companies.
• The number of car models that were profitable increased to 18 of 36 models from 4 of 43 models.
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A07-03-0014 11
Appendix 2 Nissan and Renault Profile
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Appendix 3 Carlos Ghosn’s Background*
1954 Born in Brazil, March 9
19
74
Receives chemical Engineering degree from École Polytechnique, Paris
1978 Graduates from École des Mines de Paris. Joins Michelin
19
81
Becomes plant manager at Le Puy plant, France
1984 Becomes head of R&D
1985 Becomes COO of South American operations. Turns company around
1989 President and COO of North American operations
1990 Named CEO of North American operations
1996 Joins Renault as Executive VP of advanced R&D, car engineering and development, power
train operations, manufacturing, and purchasing. Gains nickname, “Le Cost-Killer”
1999 Named Nissan president and COO
* http://www.google.co.jp/search?q=cache:NNR0tavWLwAC:www.ai-online.com/articles/
0302coverstory.asp+carlos+Ghosn,+background&hl=ja&ie=UTF-8
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4.
9B13M
108
GOJO INDUSTRIES: AIMING FOR GLOBAL SUSTAINABILITY
LEADERSHIP
Professor Chris Laszlo, Anya Briggs and Jayesh Potdar wrote this case solely to provide material for class discussion. The authors
do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain
names and other identifying information to protect confidentiality.
This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the
permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights
organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western
University, London, Ontario, Canada, N6G 0N1; (t) 519.
66
1.3208; (e) cases@ivey.ca;
www.iveycases.com
.
Copyright © 2013, Richard Ivey School of Business Foundation Version: 2013-10-1
8
How will we reach one billion people every day? Tom Marting stared at the array of handouts and posters
on his desk, thinking of his company’s big hairy audacious goal (BHAG), set in 2010, to deliver well-
being to one billion people every day. As the sustainability and life cycle assessment (LCA) specialist for
the hand hygiene company GOJO Industries (GOJO), Marting had an appreciative perspective of the
company that had invented PURELL® Instant Hand Sanitizer. Through his LCA duties, he had learned
about the properties of GOJO products from raw materials to customer use to the products’ end of life and
could link that information back to product development. He was also involved with educating team
members about the importance of sustainable value.
If the company achieved its BHAG, as measured by an algorithm that tracked “hygiene events” or single
hand washing and sanitizing uses, the payoff would be twofold: the company would grow its business and
also be able to make a significant social impact by providing a greater number of people with the health
benefits of its products. In April 2013, Diarrhea was a leading cause of malnutrition in children under five
years old as well as the second leading cause of child mortality, killing around 760,000 children a year.
Although a significant proportion of diarrheal disease could be prevented through adequate sanitation and
hygiene, there were nearly 1.7 billion cases every year.1 A study in Colombia had confirmed that children
who used PURELL® Hand Sanitizer combined with hand hygiene education had a 36 per cent reduction
in diarrhea and an 18.3 per cent reduction in respiratory ailments.
2
The BHAG of delivering well-being to one billion people every day could mean that the company’s
waterless form of sanitization would reduce fatalities caused by preventable diseases in areas of the world
where clean water was scarce or absent. This was definitely an exciting thought for the GOJO team. But it
was not a charitable organization. The only way such an effort could be realistically pursued was if it
proved to be profitable as well. The company would have to successfully enter new markets, build brand
recognition, increase customer adoption and find inspiration for new product development.
1 World Health Organization, “Diarrheal Disease,” www.who.int/mediacentre/factsheets/fs330/en/, accessed June 10, 2013.
2 GOJO Sustainability Report 2011, www.gojo.com/united-states/sustainability/report-2011.aspx, accessed October 7, 2013.
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In 2013, GOJO was a strong leader in North American markets but had a relatively limited presence
elsewhere.3 Even if every single North American used GOJO products, the company would still be only
one-third of the way toward its BHAG. Could a mid-sized family-owned company achieve such a global
ambition in the face of competition from publicly owned companies 50 times its size? Following the wise
advice of the management guru Peter F. Drucker, how could the company leverage its existing strengths
so as to make its weaknesses irrelevant?
In addition to its BHAG, GOJO set a 2020 goal of becoming a sustainable organization by embedding
sustainability in everything it did. Driven by its purpose of saving lives and making life better through
well-being solutions, GOJO had the opportunity to become a global leader in its category. Marting could
not help but feel that success in achieving this goal would hinge on how well GOJO integrated its pursuit
of both its market-facing BHAG and its internal sustainability initiative.
Marting was a systems thinker. In his work he often had to think across the silos that commonly separated
functions and departments in an organization. To achieve sustainability leadership, GOJO would have to
embed sustainability into all of its decisions and actions. As GOJO President Mark Lerner said, “The
qualities that we look for, for a real solid, good initiative as it relates to sustainability, are the same
qualities that we look for when we look for any good business project . . . there’s not a bunch of
sustainability projects over here and a bunch of business initiatives over there. They’re one and the same,
and sustainability becomes one of the attributes within an initiative or a project; it’s one of the critical
success factors so that we make sure we examine the initiative from a sustainability perspective as well as
many other perspectives.”4 Marting couldn’t agree more. He believed that if GOJO was going to achieve
its BHAG, team member engagement would be essential. With the right level of engagement, the possible
outcomes would be incredible for both the business and society.
Marting walked to his window overlooking the city of Akron, Ohio where GOJO was headquartered and
recalled the story of Tank 121. A maintenance worker who believed in environmental responsibil
ity
noticed that the factory had been wasting tons of water to clean one of the most used tanks in the
production line. The worker believed so strongly in the importance of this issue that he came in on his day
off and replaced the waterspouts with spray nozzles, which drastically reduced the amount of water usage
but also cut operating costs.
The development of GOJO SANITARY SEALED™ refill products was also the result of sustainability
efforts, this time socially focused. Many soap dispensers were open to the environment to enable refilling,
but this design was known to promote product contamination.5 While other companies continued to
produce dispensers with this potential health risk, GOJO was committed to ensuring the highest standards
of health for hand washers. With social commitment driving the innovation process, GOJO developed
factory-sealed soap dispensers and took a proactive stance in educating stakeholders about the potential
health risks associated with refillable bulk soap dispensers, making a clear distinction between itself and
the competition. For the company that invented PURELL® Hand Sanitizer to improve health and hand
sanitization, these examples of “doing the right thing” were not new. They contributed to its competitive
advantage and also showed that GOJO could profit from pursuing societal goals; in other words, GOJO
had a long track record of “doing well by doing good.”
Marting knew that GOJO both attracted and recruited employees who were driven and who would never
be satisfied with a given end product but were always seeking to improve. He also understood that the
3 As of 2013, less than 20 per cent of the company’s sales were outside of North America.
4 Interview with Mark Lerner, April 4, 2013.
5 http://aem.asm.org/content/77/9/2898.full, accessed June 10, 2013.
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pursuit of sustainable practices and solutions presented a golden opportunity for unlocking the innovation
potential of GOJO employees. By connecting its people to greater social and environmental awareness
and targets, GOJO had already discovered new ways to reduce its costs and increase its sales. Marting
was convinced that if the company could align its efforts to be sustainable and make this a core attribute
of GOJO operations, the company would discover even more ways to prosper.
He was not alone in his thinking. GOJO senior leaders had recently advanced a business strategy of
embedding sustainability into the company’s practices. But while this commitment was an important step,
how were they to do it? Would sustainability further spur the innovation, collaboration and growth needed
to reach its BHAG? If so, how could GOJO make every team member see that sustainability was critical
to his or her performance success? How could GOJO present team members at every level of the
company with the opportunities to contribute to innovation? How would they alter processes and product
designs that had been in place for decades?
COMPANY HISTORY
GOJO was born in 1
94
6 when Goldie and Jerry Lippman sought to help Goldie and her coworkers in a
rubber factory remove tough soils such as graphite, tar and carbon from their hands. Their goal was to
make a hand cleaner that would effectively remove the residue without damaging skin in the way that
other commonly used soil-removing chemicals such as benzene had. After working with Professor
Clarence Cook from Kent State University, they finally developed a suitable product. They wanted to
name the hand cleaner “GOGO,” intending to use the slogan “Make dirt go with GOGO,” but replaced
the second “G” with a “J” to stand for Goldie and Jerry.
The couple expanded the business, selling the hand cleaner from the back of their car then building up a
sales force that sold trunk loads of product to gas stations and auto parts stores. After customers
complained that the product was too expensive, Jerry Lippman realized that customers were using more
of the product than was necessary. This discovery led the couple to create the first portion-control hand
cleaner dispenser to eliminate product waste. GOJO grew rapidly over the next two decades, becoming a
leader in the heavy-duty hand cleaner market.
The first GOJO factory-sealed refill restroom soap systems were installed in 1983 with refillable
cartridges that protected against the contamination that commonly occurred in bar soaps and open
refillable bulk soap dispensers. Through this social commitment to reduce contamination, GOJO
expanded into the commercial hand cleaning business, providing the industry’s most reliable dispensing
systems and gentle soap formulas. The GOJO focus on skin care allowed it to develop product lines
specially designed for use in the health care and food service markets, which required hand cleaners that
could be used multiple times without causing harm to skin. Demand grew as food-borne illnesses drove
restaurant workers to seek germ control measures in the face of legal obligations. Hospitals and health
care professionals also needed a form of sanitization that would reduce the time spent cleansing with soap
and water. These demands led to the production of PURELL® Hand Sanitizer. This invention
revolutionized hand hygiene, and GOJO soon opened up operations in Europe, Japan and Latin America.
“The invention of PURELL® Hand Sanitizer was a turning point for GOJO and for hand hygiene.
Realizing the potential to bring well-being to people everywhere, GOJO launched PURELL® Hand
Sanitizer as a consumer product in the late 1990s. Waterless hand hygiene was suddenly within reach
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wherever people happened to be. PURELL® Hand Sanitizer soon became a household name — and
America’s number one hand sanitizer.”
6
The introduction of PURELL® Hand Sanitizer was not easy at first. GOJO met resistance, especially
from health care workers who were convinced that soap and water sanitizing was the best way to guard
against germs and disease. GOJO conducted a series of studies to prove the product’s ability to reduce
infection and improve skin condition. Over time, GOJO was able to reshape the public perception of hand
sanitization, particularly in the medical field, and make a positive social impact through its product.
Today, organizations such as the Centers for Disease Control and Prevention and the World Health
Organization support the use of the instant hand sanitizer and include it in hand hygiene guidelines for
health care, schools and other facilities.7 GOJO continued to expand upon its portfolio of products with a
growing focus on sustainable design and the creation of sustainable value.
CREATING BUSINESS VALUE BY EMBEDDING SUSTAINABILITY8
Declining natural resources, an increasing demand for transparency and government restrictions had
businesses of every industry looking for ways to show that they were doing their part to be sustainable.
Unfortunately, this external motivation often led companies to adopt “bolt-on” measures, which could be
both costly and burdensome while failing to make true social or environmental impacts.
Bolt-on procedures typically originate from the company’s sustainability department whose efforts are
primarily market facing. The few in-house greening efforts that a bolt-on approach would permit are
generally superficial and involve trade-offs between sustainability and shareholder value. Products
marketed as green or socially responsible are offered at a premium or at the detriment of product quality.
Bolt-on solutions are made to secure business value through the simplest means. By brushing
sustainability aside as a burden to be quickly and easily dealt with, companies miss opportunities to not
only make more profound social or environmental impacts but to create business value as well.
Sustainable value refers to the ongoing dual generation of value for both shareholders and stakeholders.
Companies achieve and prosper from this potential synergy when they fully embed sustainability into the
core of the organization. Inherently opposite to bolt-on approaches, embedding sustainability means that
it becomes a part of all business activities, eliminating trade-offs through innovation, influencing the
entire value chain and leading to better products and services. Embedding sustainability means weaving
sustainability into the DNA of an organization. Companies that succeed in doing this can reap great
rewards, but the process of getting there is not short or simple.
EMBEDDING SUSTAINABILITY AT GOJO
Sustainability was been a priority at GOJO since its inception. When the Lippmans first founded the
company, they used old pickle jars to store the cleaning product and window cranks from junked cars as
handles for dispensers. Their portion-control innovation reduced waste, and the factory-sealed refill
products were developed to provide health benefits to consumers. Long before scholars and professionals
had dreamed up the contemporary buzzword, GOJO was putting sustainability into practice. In 2009,
6 www.gojo.com/united-states/about-gojo/company-information/history.aspx, accessed June 10, 2013.
7 www.purell.com/news/corporate%20statements/2012/newsreleaseitem1.aspx, accessed June 10, 2013.
8 See Chris Laszlo and Nadya Zhexembayeva, Embedded Sustainability: The Next Big Competitive Advantage, Stanford
Business Books, Stanford, CA, 2011.
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GOJO held a summit engaging hundreds of internal and external stakeholders to make its sustainable
practices more formal and intentional. Company managers came away from the summit with the goal of
making GOJO the sustainability leader in its category. As Lerner said,
I think that customers are demanding [sustainability] and if organizations like ours don’t respond
to those needs and those demands of end users, somebody else will. So I think it becomes a
business imperative and if you can do it better than your competition, if you can lead your
industry in integrating sustainability into everything that you do, then I think that’s going to add
to competitive advantage and I think that’s going to separate the winners from the losers.9
In order to fully embed sustainability, GOJO created a concept called Sustainable Ways of Working
(SWOW), which encompassed policies, practices and teams focused on specific elements of the
company’s sustainability strategy. In 2011, GOJO formed the Sustainability Enterprise Team to identify
and oversee priorities from the Sustainable Value Business Plan developed to ensure progress against
corporate goals while embedding sustainability into the company’s daily work processes. As the corporate
sponsor for sustainability, chief financial officer and administrative vice-president Scott Levin guided the
team’s work. The team was comprised of champions from across GOJO work groups and was led by
Global Sustainability Marketing Director Nicole Koharik to promote integration between SWOW and
market-facing priorities. Ultimately, SWOW will become not merely another sustainability initiative but a
way of thinking and acting for GOJO employees. Aspects of SWOW span different strategic approaches
from risk mitigation to new market entry. Exhibit 1 frames the process of embedding sustainability as
success across six levels of strategic focus that clearly showcases the GOJO progress thus far.
SUSTAINABILITY INITIATIVES TO DATE
Mitigating Risk (Level 1)
GOJO risk aversion efforts have included the development of a sustainable chemistry strategy, which
includes principles for environmentally sensitive and socially effective chemical practices to prevent risk
and to further green innovation. In 2013, GOJO was devising a screening list of unacceptable raw
materials, such as potentially carcinogenic ingredients. As senior regulatory affairs specialist Kristin
Hartzell noted, there was a deep connection between risk management and the GOJO market facing
BHAG. Regarding the goal of reaching one billion people every day, she said, “To do that, we have to
ensure that our products are the safest products possible for both human health and the environment.”10
Understanding that bolt-on solutions rely on internal perspectives and planning and to avoid this trap,
GOJO used an internal team along with external stakeholders from customers and vendors to third-party
organizations to help determine the best practices for risk management as well as other ways that
responsibility to people and the planet could translate into business value.
Reducing Energy, Waste and Materials (Level 2)
For GOJO, LCA was an important part of identifying potentially negative impacts from material
selection, through production and distribution and all the way through the product’s end of life. Marting
described the process as “accounting for all of the enterprise’s environmental impacts, analyzing them so
their consequences are fully understood and then using this information to help guide business
9 Interview with Mark Lerner, April 4, 2013.
10 GOJO Sustainability Report 2012.
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decisions.”11 Information gathered from LCA regarding greenhouse gas emissions and energy use led to
great efficiencies throughout the value chain.
In 2012, GOJO introduced its environmental management system (EMS) with a team of employees
focused on laying out the best approaches for achieving the company’s five-year goals of cutting water,
waste and greenhouse gases and embedding those approaches as part of SWOW. GOJO aimed to reduce
water use by 30 per cent relative to the baseline rate and nearly achieved that goal three years ahead of the
target. The Water Reduction Team made improvements in equipment and operations to save more than
1.5 million gallons in one year. With 84 per cent of waste over the past year being recycled, the company
was well on its way to reducing solid waste by 25 per cent. In this area, GOJO was also able to combine
social and environmental impact by donating excess product to a charitable organization rather than
sending it to a landfill. Installing energy-saving equipment and fixtures, bringing a supplier closer to the
manufacturing centre and reducing pre-printed materials allowed GOJO to triple its original 5 per cent
target for greenhouse gas reduction. In addition to these efforts, GOJO pursued more sustainable
packaging, including the lightweight GOJO SmartFlex™ PET bottles that contain 30 per cent less plastic
than standard HDPE bottles, and team member education programs to encourage personal sustainability
practices such as using company provided refillable water bottles. (See Exhibit 2 for full sustainability
metrics.)
Differentiation (Level 3)
Product differentiation was a part of the GOJO history and success. The desire to create a hand cleaner
that was both effective and gentle spurred the earliest GOJO innovations, including PURELL® Hand
Sanitizer. Commitment to improving public health led to the development of new soap dispensers and
formulations that surpassed competitors’ performance standards. Sustainable product innovation led
GOJO to launch the world’s first green certified hand sanitizer and to develop the only product of its kind
to meet U.S. Food and Drug Administration (FDA) germ kill regulations with a single 1.2 millilitre
dispense.12 Its focus on greening hand hygiene products earned GOJO recognition from EcoLogo®
environmental leadership certification. It boasted a complete green certified hand hygiene portfolio,
which proved to yield triple the growth of regular products (see Exhibit 3 for sales metrics). As GOJO
looked to the next generation of hand hygiene formulations and dispensers, a driver was sustainability-
inspired innovation (see Exhibit 4 for GOJO innovations that serve multiple bottom lines). By having a
separate line for its sustainable products, GOJO had not yet fully embedded sustainability in terms of
differentiation; however, it was on the right path. Through an initiative called Project Green Beans, GOJO
sought input from both internal and external stakeholders as it planned for the next phase of production.
Entering New Markets (Level 4)
Over the years, sustainability-driven product innovations have transformed GOJO from a company
focused solely on heavy-duty hand cleaning for factory workers to a market leader in health and hand
hygiene, permeating industries from health care to food services. These transitions were not without
difficulty. Entrance into health care was met with resistance, as GOJO had to prove that its simple hand
sanitization method could be as effective as soap and water. The company’s successful expansion into
11 Interview with Tom Marting, April 6, 2013.
12 PURELL Advanced Instant Hand Sanitizer exceeds FDA health care personnel hand wash requirements with 1.2 millilitres
of product. Applies to ADX and LTX dispensers with a fully primed pump through 95 per cent of refill.
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new markets brought value to GOJO and its stakeholders alike, exposing more people to the health
benefits of GOJO products while increasing sales for the company.
GOJO had been looking to expand geographically, and while in the past sustainability drove GOJO into
new markets, an even more exciting prospect was GOJO bringing sustainability into new areas of the
world. In April 2013, the GOJO global green product portfolio received green certification from the
Brazilian Association of Technical Standards (ABNT). Market Watch credited the company’s progression
toward global leadership to its “green-certified products portfolio” and “highly effective and sustainable
formulations.”13 A lot more remained to be done in terms of geographic expansion if the company was to
reach its BHAG of creating well-being for one billion people every day.
Protecting and Enhancing Brand (Level 5)
GOJO was increasingly well-known in North America. Interestingly, the product that offered the most in
terms of both social and environmental sustainability was the company’s most well-known brand. The
ability of PURELL® Hand Sanitizer to cut water use, provide an easy form of hand sanitization in any
circumstance and allow multiple uses without any skin damage, combined with its new natural-based
formulation, made the PURELL® brand exemplify the GOJO story and commitment to sustainability.
Influencing Industry Standards (Level 6)
GOJO described its sustainability journey as being a matter of leading and learning. As the first company
to develop a hand sanitizer that exceeded FDA health care personnel hand wash requirements, GOJO
challenged others in its category to rethink formulas as well as packaging. Additionally, GOJO influenced
the inclusion of hand hygiene requirements for LEED existing building certification and earned Ohio’s
Environmental Protection Agency recognition for its environmental management system. The GOJO
ability to influence industry standards came from both its external collaboration and its commitment to
provide solutions to social challenges.
External collaboration was a core tenet of SWOW and also one of the company’s priority initiatives for
2013. GOJO learned from its partners and customers and had opportunities to influence them. Not only
did GOJO receive certification from ABNT, it worked with that organization to develop its certification
criteria. ABNT used GOJO’s sustainability achievements as a model for its certification, and thus GOJO
helped to set the standard for companies in Brazil. GOJO made a point of educating other companies
about the risk of contamination in refillable bulk soap dispensers and designed its dispenser and refill
systems to address this public health risk.
PURSUING GLOBAL LEADERSHIP
BHAG: Bring Well-Being to One Billion People Every Day
Since its formalization in 2010, the GOJO BHAG of reaching one billion people every day had already
seen a 25 per cent increase towards its target by 2012, as measured by an internally developed algorithm
based on product uses (See Exhibit 2). Employees were hugely motivated and inspired by the ambition of
13 www.marketwatch.com/story/gojo-adds-to-growing-global-portfolio-of-green-certified-products-2013-04-02, accessed:
June 27, 2013.
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the goal. At an in-house innovation fair, employees credited many of their ideas to the inspiration they
gleaned from the company’s daring objective. Vice-chair Marcella Kanfer Rolnick attributed this
inspiration to the dual nature of the goal: “We’ve always been inspired to have our sustainability
commitment and strategy be at the heart of our business strategy. . . . Our enterprise BHAG is our social
sustainability BHAG too. . . . Our whole business, therefore, is galvanized by it.”1
4
How could GOJO further contribute to public health and hygiene? What should it do in terms of product
innovation, public education and market access to reach its 2020 goal? How could it build on its existing
strategic assets rather than force a growth model ill-fitted to its way of operating? GOJO was not a global
Fortune 500 consumer goods giant and would have to find other ways to accomplish its two-pronged goal
of business and societal success. GOJO would have to keep educating the public and providing new
customers with access to its products in new ways, but what else could it do to achieve its goal of
reaching one billion people every day?
2020 Goal: Be Sustainable Through Sustainable Ways of Working
The GOJO purpose of “saving lives and making lives better through well-being solutions” showed that
sustainability was already at the core of the company’s reason for being. As GOJO worked to put
principle to practice, it continued to drive radical innovation on its journey from cleaning soiled hands in
1946 to contributing to a healthy world in 2013. GOJO was already making great strides at each of the six
levels of sustainable value creation, but two questions remained: Would existing efforts be enough to help
GOJO achieve its BHAG on its way to becoming a global leader? What radical innovations in product
design, processes and business models could GOJO undertake by 2020?
STARTING AT HOME
GOJO was already working to create sustainable value across the six major levels of impact, but could its
SWOW initiative possibly be the glue that would pull all its efforts together and launch the company into
a global leadership position? What might GOJO need to do to further embed sustainability in every part
of its value chain and each function and department? How could SWOW tap into employee creativity and
innovation to enable the company to reach its BHAG?
These were the questions that continued to roll around in Marting’s mind as he gathered up the materials
for his “Lunch & Learn” session. His mind drifted back to the Tank 121 story. Because of one person’s
passion and creativity, the company had been able to conserve so much water. What if every single
person in the company had an idea like that, whether inward-facing to further improve material selection
through operations and distribution or market-facing to enable its global expansion plans? GOJO was
doing well in achieving its sustainability goals, but there were still many challenges that needed to be
solved and new ways to improve. How could the company’s sustainability champions manage to reach
everyone in the company — get them excited about sustainability and give them the opportunity to share
their ideas? Perhaps to bring well-being to one billion people every day, the company would have to start
by engaging more deeply each and every team member in the company first. Marting picked up his
educational materials and headed to the cafeteria to do just that.
14 Interview with vice-chair Marcella Kanfer Rolnick, July 9, 2013.
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Page 9 9B13M108
EXHIBIT 1: GENERIC STRATEGY RESPONSES TO SUSTAINABILITY
From The Sustainable Company, by Chris Laszlo. Copyright © 2003 Chris Laszlo. Reproduced by permission of Island
Press, Washington, D.C.
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Page 10 9B13M108
EXHIBIT 2: GOJO SUSTAINABILITY METRICS
Source: Company files.
EXHIBIT 3: BREAKDOWN OF SALES BY CHANNEL
Source: Company files.
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Page 11 9B13M108
EXHIBIT 4: THE GOJO® LTX™ & ADX™ DISPENSING SYSTEMS: HEALTHIER FOR BUILDINGS,
THE PLANET AND CUSTOMERS’ BOTTOM LINES
HEALTHIER BUILDINGS HEALTHIER PLANET HEALTHIER BOTTOM LINE
GOJO ADX
and LTX
dispensers
Aesthetically appealing
dispensers and formulations
encourage use and help
maintain a healthy
environment.
Designed and manufactured under LCA
process to reduce environmental impact
from the start. ADX impact reductions
(versus previous generation):
• 79 per cent reduction in smog
emissions
• 15 per cent reduction in greenhouse
gases (GHG)
• 20 per cent reduction in energy
consumption
LTX impact reductions (versus previous
generation):
•
62
per cent reduction in smog
emissions
• .9 per cent reduction in GHG
• 14 per cent reduction in energy
consumption
Removable pump makes recycling
easier.
Easier to service:
• Large site window for easier
monitoring of content.
• Soap cartridges snap quickly
and easily in place.
Backed by GOJO Lifetime
Performance Guarantee,
including batteries.
Controlled consumption: LTX™
system dispenses an optimal,
metered dose to support an
effective hand wash while helping
control usage and cost.
GOJO®
SANITARY
SEALED™
refills
Sealed soap dispensing
system locks out germs to
protect health and well-being
of restroom users.
Fresh nozzle included with
each refill.
Recyclable PET refills use 30 per cent
less materials than traditional HDPE
bottles.
Shippers contain at least 20 per cent
post-consumer recycled content (PCR).
Mess-free refills snap quickly and
easily in place.
PURELL®
Advanced
Green
Certified
Instant
Hand
Sanitizer
Ounce for ounce, outperform
other leading hand sanitizers.
The only green certified hand
sanitizer to meet FDA germ kill
requirements with a single
1.2mL dispense.
Features a natural, plant-
based moisturizer and is
clinically proven to maintain
skin health. Dye- and
fragrance-free options
available.
Plant-based, biodegradable.
Green
certified
GOJO®
soaps
Soothing foam and spa-
inspired colours and
fragrances encourage use and
enhance health and well-being
of restroom users. Dye- and
fragrance-free options
available.
Plant-based, biodegradable
formulations.
LEED
certificatio
n
Products support LEED
(Leadership in Energy and
Environmental Design)
certification from U.S Green
Building Council (USGBC)
makes buildings more inviting
to tenants, employees and
visitors
Both dispenser systems include
environmentally sustainable soaps and
sanitizers that have earned EcoLogo®
certification
Source: www.gojo.com/united-states/sustainability/products/smartsustainableddispenserdesign.aspx, accessed June 8,
2013.
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39
5.
Leadership in a
Globalizing World
B Y
Rosabeth Moss Kanter
E X C E R P T E D F R O M
Handbook of Leadership Theory and Practice:
A Harvard Business School Centennial Colloquium
Edited by
Nitin Nohria and Rakesh Khurana
Harvard Business Press
Boston, Massachusetts
ISBN-13: 978-1-4221-61
64
-7
6160BC
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Copyright 2010 Harvard Business School Publishing Corporation
All rights reserved
Printed in the United States of America
This chapter was originally published as chapter 20 of Handbook of Leadership Theory and Practice:
A Harvard Business School Centennial Colloquium,
copyright 2010 Harvard Business School Publishing Corporation.
No part of this publication may be reproduced, stored in or introduced into a retrieval system,
or transmitted, in any form, or by any means (electronic, mechanical, photocopying,
recording, or otherwise), without the prior permission of the publisher. Requests for
permission should be directed to permissions@hbr.org, or mailed to Permissions,
Harvard Business School Publishing, 60 Harvard Way, Boston, Massachusetts 021
63
.
You can purchase Harvard Business Press books at booksellers worldwide. You can order Harvard
Business Press books and book chapters online at www.harvardbusiness.org/press,
or by calling 888-500-
101
6 or, outside the U.S. and Canada, 617-783-7410.
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42
20
Leadership in a Globalizing
World
Rosabeth Moss Kanter
What do leaders do? And what will they do in the future? Is this any different in a globalizing world—that is, one in which there
are plural public spheres—than in other contexts?
This paper offers a sociological, empirically grounded view of lead-
ership that is both descriptive and normative. It is based on holistic
case studies of international companies that examined the perspective
of employees and managers on the ground in their local/national set-
ting as they addressed, used, and infl uenced global frameworks. 1 In
short, the research, which is reported fully in my book, Supercorp: How
Vanguard Companies Create Innovation, Profi ts, Growth, and Social Good,
examined the widest possible geographic context in which leadership is
exercised. A focus on the context for leadership illuminates the work of
leadership, and that, in turn, illuminates the skills and qualities of per-
sons who are chosen for leadership roles. In short, a sociological
approach begins with the context and assumes that the characteristics
of leaders must fi t the context, mediated by the nature of the tasks lead-
ers must perform in order to master the context.
The paper begins with generalizations (admittedly sweeping ones)
about macro-trends—the meaning of globalization. The trend analy sis is
the basis for a simplifi ed construct for how three aspects of globalization
1
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43
The Practice of Leadership
(increased uncertainty, complexity, and diversity) shape the work leaders
must perform. Three big tasks follow from the three conditions:
• Institutional work to deal with uncertainty
• Integrative work to deal with complexity
• Identity work to deal with diversity
I then illustrate the nature of these leadership tasks and how they
can be carried out effectively with examples from my research. There is
a great deal of continuity with enduring tasks performed by leaders but
also some challenging differences of kind or extent that make it impor-
tant to develop new knowledge about leadership for the future. The
naturalistic observations and frameworks in this paper raise questions
for further research.
The Context: Global Trends That Impact Leadership
Macro-trends set the context for exercising leadership, and thus we
must begin with a little history. 2 International trade and the interna-
tional scope of business are long-standing phenomena, and some of the
companies in my research have been “international” in scope for a cen-
tury. But even those companies are quick to point out the differences
introduced by the current wave of globalization. The current wave,
which has had several phases, can be traced to technological and geo-
political changes starting in the 1980s. These changes were themselves
the outgrowth of technological and economic developments following
World War II.
The 1980s included several important events that shaped global
communication and competition: the development of personal com-
puters and widespread use of computing technologies, the fax machine
and early Internet increasing communication speed, and the rise of
Japanese industry and European community deliberations causing
industry restructuring. A series of events around 1989 marked geopo-
litical change: the fall of the Berlin Wall heralding the end of commu-
nism in Eastern Europe, the liberalization of Asian fi nancial markets,
the democratization of some Latin American regimes, and prepara-
tions to release Nelson Mandela from prison in South Africa.
The 1990s were characterized by the supposed (note the modifi er)
triumph of free market ideology, the formation of regional trade blocs,
2
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44
Leadership in a Globalizing World
rapid growth in developing countries, and the opening of China and
India to more signifi cant foreign direct investment. The creation of the
World Wide Web in 1993 and the subsequent Internet business boom
facilitated global communications connectivity.
However, agents of globalization had also overshot the mark, result-
ing, among other things, in the Asian fi nancial crisis in 1998 and the dot-
com crash in 2001. The opening years of the twenty-fi rst century brought
global terrorism, political backlash and protectionism, and the return of
overtly socialist regimes in Latin America. For a time globalization was
discredited and criticized, as the developed world faced slow growth and
tightened national security, as well as skirmishes and war in the Middle
East and Central Asia. But at the same time, the 2000s also brought Web
2.0—a more interactive form of the Internet—and continued growth
opportunities in BRIC nations (Brazil, Russia, India, and China) and
other attractive emerging markets. Educated populations competed for
high-skilled jobs with developed countries, technology expertise and
engineering talent was increasingly found in developing countries, and
multinational companies no longer had to rely on expatriates to staff
their operations outside of their home countries. The loss of developed
country advantages and the rise of emerging country giants (including
those in my research) led to declarations that the world is now “fl at,” that
is, a level playing fi eld in terms of technology and industrial might. 3
Over these three decades, the response of businesses to global
opportunities and pressures has fed further globalization. Industry
consolidation in fi nancial services, consumer products, and basic indus-
tries such as steel and auto manufacturing, to attain economies of scale
and wider scope, has had a global as well as national dimension, while
competitors from emerging countries have threatened established
players. As governments loosened regulations, cross-border alliances
and mergers have occurred in formerly controlled industries such as air
transportation and telecommunication. Service industries, such as
advertising, management consulting, and systems integration, have
sought mergers to ensure global scope, as illustrated by the rapid
growth of Publicis Groupe, one of the companies in my research, from
a European company toward the bottom of the top twenty in the
industry worldwide to the fourth largest player and number one in
some areas, such as digital services.
When businesses cross country lines, the business/society relation-
ship becomes more visible and salient. It is not surprising, then, that a
3
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45
The Practice of Leadership
globalizing world has moved the concept of corporate social responsibility—
recently reframed by some companies as corporate citizenship—from
periphery to mainstream, on every continent. The movement, embraced
by employees as well as pushed by external activists, brings private compa-
nies into the public arena. The public role of privately owned companies is
refl ected in the importance of interaction with government. Walter Wris-
ton, legendary chairman of Citigroup, one of the fi rst extensive global
banks, prematurely declared the death of sovereignty. 4 Business can defi ne
strategy as though it is a borderless world, as Kenichi Ohmae proposed, 5
but there are still border patrols in every country attempting to secure
more of the fl ow of capital within the country’s own boundaries while also
opening markets to attract investment and growth. There is a delicate
relationship between politicians and multinational—that is, foreign—
companies. The business/society relationship requires management
beyond the market. Ben Heineman, former general counsel for General
Electric, argues that companies need their own “foreign policy.”
Taken together, these changes represent forces that cannot be
ignored, nor can they be reversed by the actions of individual compa-
nies. They spread through the local ecosystem through the interactions
among companies across their extended family of suppliers, distribu-
tors, customers, and investors—for example, the way that Publicis’s
desire to retain Nestlé’s business requires fi nding a way to be present in
all the places that Nestlé operates. This becomes a self-fueling dynamic.
Globalization itself adds pressure on companies to be global—“world
class”—in orientation, sourcing, and standards if not market scope, and
to thrive domestically by joining global networks. 6
Global competition forces change even in domestic players.
For
example, Shinhan, a bank in Korea formed in 1982 to serve the middle
market (while large established banks focused on the chaebols, or con-
glomerates), grew profi tably and survived the Asian fi nancial crisis of
1998, while established banks needed government bailouts. Noting
international banks entering its markets, Shinhan decided in 2003 to
acquire one of the largest of the old banks from the government
(I began to study Shinhan in the postmerger phase) and simultaneously
prepare for global growth by obtaining a listing on the New York Stock
Exchange. By 2006 it was the largest fi nancial group in Korea and one
of the twenty-fi ve Asian stocks tracked by the Wall Street Journal , out-
maneuvering both domestic and international competition in its home
market by incorporating global standards.
4
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46
Leadership in a Globalizing World
Deconstructing Macro-Trends: Organizational
Challenges and the Work of Leaders
It is popular today to view leadership as a skill and activity set apart from
and different from that of management, even though popular parlance
also tends to confl ate leaders with those occupying positions of manage-
rial authority. For purposes of this paper, I will confi ne the work of man-
agement to oversight of the technical or functional aspects of an
organization, and use leadership as a more dynamic effort to shape the
direction of an organization beyond its technical core. Management, or
the idea of technical functionaries, is a concept rooted in the industrial
age. Max Weber was thinking about government agencies, not factories,
when he conceptualized bureaucracies as perfect impersonal vehicles
for organizing and perpetuating routines. But it was in factories that
mass production fl ourished and analytics dominated, keeping his idea
alive. It was considered negative rather than positive by many (but not
all) management theorists that the less rational human side of enterprise
kept intruding on rationally engineered organizations.
Management emerged as a science in an era defi ned by machines and
inward-focused machinelike business organizations. Much of manage-
ment theory and practice in the industrial age, and the remnants in facto-
ries for services, were technocratic. There was less need to think about
leadership. Indeed, Weber seemed to have an underlying disdain for the
irrationality behind the appeal of charismatic leaders, and seemed relieved
that once they founded organizations, agitators might continue to appeal
to emotions but administrators could take over and run the place.
So much of management theory, especially as overtaken by econo-
mists, was based on a series of simplifying assumptions associated with
industrial era thinking, which tended to ignore the broader ecosystem
context. These assumptions were of the following:
• Relatively stable activities with clear boundaries
(high routinization)
• Relatively simple structures (clear chains of decisions and
reporting)
• Relatively homogenous populations (dominant majorities
of similar types)
• Relatively high control over organizational and individual
information (privacy and secrecy)
5
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The Practice of Leadership
With such assumptions about organizations, no wonder there was
not much attention given to work beyond the technocratic, and there
was not much attention to leadership. Once an organization was
designed, managers had control, and everyone knew what they were
supposed to do—or so it was assumed.
But scholars, consultants, and practitioners have increasingly chal-
lenged those simplifying assumptions during the same three decades
that I have called the current wave of globalization. There have been
numerous critiques of the pathologies of bureaucracies and calls for
new paradigms that would supplant command-and-control, tall
hierarchies for decisions, impersonal management by money, rigid
structures, and so forth (even while some processes have become even
more scientifi c, such as the emphasis on Total Quality Management
and then Six Sigma). Matrix organizations, interorganizational rela-
tionships, and networks were all discovered by theorists as they came
to be used in practice. There have been numerous calls for leaders to
replace managers.
Thus, there has been a search for a paradigm that stresses leader-
ship as a skill and activity above and beyond management. It’s not lit-
eral globalization (that is, greater international contact) that has
produced this quest for a new paradigm, nor is it global sales. Rather,
change stems from the broadening of horizons, enlarging sources of
ideas as well as supplies—which is why the term information should be
added to the term global in defi ning the globally connected information
era. But certainly those companies working across national borders and
viewing themselves in global terms as examples of global rather than
local standards, such as the companies in my research, represent the
fullest fl owering of globalization’s impact on organizations.
Clearly, the old simplifying assumptions are obsolete. We cannot
create valid theories based on assumptions of stability, simple structures,
population homogeneity, and secrecy. Instead, we must contend with
four contrasting phenomena:
• Uncertainty: More frequent, rapid, unexpected change
• Complexity: More moving parts, more variables in play
simultaneously
• Diversity: More variety of people and organizations, more
dimensions of difference among those in contact
• Transparency: More information known about more people and
organizations in more places
6
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48
Leadership in a Globalizing World
Organization theory has already moved away from some obsolete
assumptions, as can be seen in the important emphasis on social net-
works and network analysis, both within and across organizations. 7 But
practice has been ahead of theory when it comes to seeing what differ-
ence all this makes for leaders and how to frame and conceptualize the
nature of leadership under globalization.
First, leadership has an interpersonal dimension, although it is not
purely interpersonal. An ongoing, defi ning task of leaders is to inspire
their followers—to guide and motivate performance, to instill confi –
dence in advance of victory. Leaders have always performed inspira-
tional work, and they always will. A second aspect involves setting
standards for what is good conduct and serving as models for meeting
those standards—leaders as the laureates of the true and beautiful,
who are leaders in their fi eld while not always necessarily leaders of
people. In short, integrity. Integrity work is also classic and enduring,
but it does increase in importance in a globalizing world because of
the fourth aspect of globalization: increased information fl ow and
pressures for transparency, from regulatory bodies policing companies
and companies assessing governments, and NGOs examining both.
Misconduct is more readily exposed and risks to reputation more read-
ily communicated by watchdog groups using Internet tools, so the task
of ensuring that the organization meets high standards grows in
importance and takes on global dimensions. The impending death of
privacy and secrecy makes ensuring integrity in oneself and others
more central to the defi nition of leadership. Leadership is not about
fi nancial results alone.
Those two classic I’s of the tasks of leaders—inspirational work and
integrity work—are just the starting point. The global forces I have
identifi ed shape the context for three important tasks for leaders as they
guide organizations and infl uence other people:
• To deal with uncertainty, institutional work
• To deal with complexity, integrative work
• To deal with diversity, identity work
Top leaders perform this work personally, on behalf of the organiza-
tion, and they set the framework for many people throughout the
organization to do this work in addition to their technical tasks. Particu-
larly at the top, leaders operate through the messages they espouse
(what they say), the models leaders exemplify (what they do), and the
7
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49
The Practice of Leadership
mechanisms they establish (what leaders enable others to do). 8 But in a
globalizing world, leadership is not confi ned to the top positions (those
which traditionally have been the most highly compensated and carry
the most command over resources). Top leaders rely on many people
exercising these responsibilities of leadership—the essence of integrative
work, which is to facilitate connections rather than exercise command.
This paper offers these three kinds of work of leaders as the future
of leadership in organizations, as a kind of universal that itself is global
in scope. In any country, in any culture, in any particular organization,
there may be a range of individual and interpersonal styles characteris-
tic of that entity—the cross-cultural differences often invoked in inter-
national management texts. But focusing on country norms of behavior
does not get us very far in understanding leadership effectiveness and
organizational performance, and it could be a futile, stereotypical dead
end. Across the twenty countries in my project, three are certainly dif-
ferences in leadership style—for example, loudness of voice or direct-
ness of manner—but there is also convergence at a higher level as
leaders address the common tasks they must accomplish.
I will now turn to the three big tasks one by one, illustrating with
empirical examples how leaders from the companies in my project per-
form them. I will ask readers to bear in mind four caveats: that these
tasks are not easy and must be performed beyond all the technical work;
that the companies in my study might not be representative of the vast
majority of businesses; that no one of the companies or their leaders
meets the ideal that the skeptical public holds out for perfect conduct
in every respect; and that the new conditions often have a downside of
unintended consequences or pernicious effects.
Leading Under Uncertainty and Rapid Change:
Institutional Work
The era of globalization is characterized by frequent, rapid, and some-
times unpredictable change, both done by leaders and done to them by
events in the external world. Globalization increases the speed of
change, as more competitors from more places produce surprises. Sys-
tem effects send ripples that spread to more places faster—innovations
in one place proving disruptive in others, problems in one economy
triggering problems in others. Although geographic diversifi cation is a
hedge against local risk, geographic consolidation to gain economies of
8
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50
Leadership in a Globalizing World
scope can expose companies to risks that cannot be contained. For
example, this is a concern for IBM leaders about consolidating certain
data storage or processing functions in fewer places, which increases
global vulnerability from local events.
Furthermore, companies acquire, divest, or are acquired; the busi-
ness mix of globalizing companies changes frequently; and jobs levels
fl uctuate across countries. So what exactly is the same that makes us say
this is the same company? Bank of America is the surviving name after
numerous mergers, but the underlying surviving bank is Nation’s Bank,
which gave up its name but not its headquarters, management cadre, or
culture. And where are the sources of certainty that permit people to
take action in an uncertain world? “Management is temporary, returns
are cyclical,” IBM CEO Sam Palmisano said, explaining to me why he
puts so much emphasis on values and culture.
The answer to the question of who we are in the future is that we
are not our current widgets, but we are our values, and that can help us
fi nd the right new widgets to serve society. Globalization seemingly
detaches organizations from particular societies only to require the
internalizing of society and its needs (many societies) in organizations.
Institutional certainty can balance business uncertainty.
Thus, leaders can compensate for uncertainty by institutional
grounding—identifying something larger than transactions or today’s
portfolio that provide purpose and meaning. Institutional frameworks
permit diverse, self-organizing people to gain coherence. Joel Podolny
and Rakesh Khurana have argued that meaning-making is the central
function of leaders. 9 I am arguing that the meaning that is most impor-
tant for institutionalizing an organization is a purpose and values that
provide a rationale beyond the transactions or activities of the moment.
Institutional work involves active efforts to build and reinforce aspects
of what is loosely called organizational culture—but it is also much
more than that. Culture, as generally used, is often a by-product of past
actions, a passively experienced outgrowth of history. Institutional
work is an investment in activities and relationships that do not yet
have an instrumental purpose or a direct road to business results but
that instead show what the institution stands for and how it will
endure.
Institutional work is a survival strategy. Globalization increases the
likelihood of shorter organizational life cycles, as a result of mergers
and acquisitions, industry consolidation, and intensifi ed competition
9
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51
The Practice of Leadership
driving out weaker competitors. It is plausible to hypothesize that the
extent and depth of institutional work can divide the survivors from
those subsumed by global change, equivalent to the difference between
long-lived and short-lived utopian communities in my earlier research
about commitment and survival. 10 The leaders whose organizational
heritage lives on even if names change are likely to be masters of insti-
tutional work.
For example, ABN AMRO, a Dutch international bank, was a take-
over target in 2006–2007 because of undervalued assets. Meanwhile, its
Brazilian subsidiary, Banco Real, was a high-performer growing in size,
reputation, and fi nancial performance. This was widely attributed to
institutional work by CEO Fabio Barbosa and other top leaders to infuse
the bank with values of environmental and social responsibility. These
values give larger purpose to daily work and stimulate innovation to
serve customers and society with practices that meet high standards.
Starting around 2001, in response to the most recent phase of globaliza-
tion, Barbosa made corporate social responsibility (CSR) the core of the
business strategy—the bank’s key point of differentiation. In 2006, when
the Dutch parent ABN AMRO was on the auction block, producing
enormous uncertainty and anxiety in Brazil, Barbosa turned again to the
Banco Real’s culture. He reminded managers that the best protection
was high performance stemming from intensifi ed efforts to showcase
institutional values. He told them at smaller meetings and larger con-
ferences that certainty came from their knowledge that they were “doing
the right things the right way every day” (a slogan he often repeated). In
April 2007, a consortium bought ABN AMRO, and ownership of Banco
Real shifted from the Netherlands to Spain’s Santander, which bought
the Brazilian assets to add to the branches it already operated in Brazil.
But the spirit of Banco Real involved much more than the assets. Fabio
Barbosa was named CEO of the combined entity, and the Banco Real
culture and values were to be infused throughout Santander Brazil.
Banco Real is the institution that lives on; Barbosa is adding 25,000 new
people from Santander to the 30,000 he had already led.
Institutional work infuses meaning into the organization, “institu-
tionalizing” it as a fi xture in society with continuity between past and
future. Institutional work is such a broad idea that it is hard to single it
out from integration, identity, and integrity tasks, all of which contrib-
ute to the grand institutional mission of being more than a bundle of
business assets and transactions. The institutional work of leaders
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52
Leadership in a Globalizing World
involves establishing and reinforcing values and principles throughout
the organization through conversations and actions. In so doing, lead-
ers help the organization internalize society and societal goals.
Establishing and Transmitting Values: Conversations About
Higher Purpose
Having a statement of values has become common, but the institutional
work of leaders goes beyond the mere posting of a set of words. In
recent years, CEOs of companies in my project headquartered in the
United States, Mexico, the United Kingdom, and Japan all allocated
considerable resources to breathing new life into long-standing values
statements, engaging multiple levels of junior leaders in this institu-
tional task of identifying and communicating values. The point was not
the exact words themselves but the living process: to begin a dialogue
that would keep the sense of social purpose in the forefront of every-
one’s mind and use that as a guidance mechanism for business deci-
sions. That was how Procter & Gamble leaders saw the company’s PVP
(statement of purpose, values, and principles); CEO A. G. Lafl ey and
Vice Chairman Bob McDonald spent much of their time teaching
about and discussing the PVP in formal programs and in visits to loca-
tions around the world.
Omron’s new CEO, Sakuta-san, led a restructuring of this Japanese
global electronic sensors company from 2002 to 2006. But he says that
he considers something beyond rearranging the business portfolio or
technical engineering prowess more important to the long-term endur-
ance of Omron: Omron’s Principles. The Principles, which had been
created many years earlier, were rewritten in 2002 and then transmitted
through a massive communication process that could have seemed a dis-
traction from the managerial work of restructuring. It proved instead the
glue that helped Omron through business ups and downs. Today, groups
of employees begin each workday by reciting the core slogan, salespeople
start conversations with customers by talking about the Omron Princi-
ples, and representatives invoke the Principles fi rst when meeting with
companies they are vetting and courting for acquisition. (The analogy
with religious ritual is apparent.) CEO Sakuta-san fully expects that
35,000 people in Omron might have different interpretations—maybe
35,000 different ones—but that the engagement and discussion is the
important thing. He said, “Whenever I speak with employees, I tell them
your answer should not be a set answer. Please tell what you understood,
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53
The Practice of Leadership
and how you can express it using the language of the Principles. I also
promote discussion among peers, colleagues, and teams to share these
understandings with each other.” He puts this in terms of a very long
time horizon: “No matter how different the workplaces are in terms of
race, value sets, geographical locations, etc., as long as we can continue
this debate and discussion, we are able to maintain our attractive and
strong work environment and Principles with a fl exible attitude to
respond to any changes to come in 50, 100, 200, 300 years. And I believe
we will be able to refi ne the Principles by doing so.”
IBM CEO Sam Palmisano’s process for refreshing IBM’s values for
the twenty-fi rst century was itself a dialogue on a scale beyond any-
thing any company had ever done. By 2000, IBM had outlived others
prominent in the industry twenty-fi ve years earlier but was hardly the
same company from a business perspective. It had downsized or sold
manufacturing (later selling the ThinkPad to Lenovo), grown in soft-
ware and services, emphasized the Internet over mainframes, had
nearly as many employees in India as in the United States, and was tar-
geting growth in all the BRIC nations. So what was IBM? One of the
early leadership actions that Sam Palmisano took when he became
chairman and CEO in 2002 was to refresh the IBM values through a
unique participative process involving Web chats open to over 350,000
IBMers worldwide. He wanted people to have pride in IBM as an insti-
tution, not to be following a leader: “The values are the connective tis-
sue that has longevity.”
Corporate Diplomacy Writ Large: Elevating Each Society
One paradox of globalization is that it is accompanied by a greater need
for deep national and local connections in many more places, in plural
public spheres. To thrive in diverse geographies and political jurisdic-
tions, companies must build a base of relationships with government
offi cials, public intermediaries, and customers that can ensure align-
ment of agendas even as circumstances (and public offi cials) change. In
some places, these external stakeholders are interested in the quality
and sustainability of the institution as a local contributor as much as
the transactional capabilities of the organization. The global organiza-
tions themselves want both an extended family of relationships that can
endure and a seat at the policy table for matters affecting their ability to
do business in the future. So the institutional work of leaders extends
outside the enterprise.
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Leadership in a Globalizing World 1
For example, IBM’s Palmisano circumnavigates the globe six or
seven times a year to meet with national and regional offi cials, bringing
regional leaders with him, discussing how to help the country achieve
its goals. This is not sales, not even marketing, but rather a high-level
conversation to indicate IBM’s interest in being an enduring institution
contributing to that country. Such contacts help other IBM leaders get
seats at the table discussing the country’s future. That certainly pro-
vides an opening for discussion of the company’s policy agenda (which
is more technical than political). But any instrumental goal would not
be achievable without fi rst contributing to efforts clearly benefi ting the
country.
Institution building requires effort by many people. Top leaders
involve others in leading diplomacy, such as representing the company
to the community at conferences and civic or charitable dinners and
serving communities directly through service projects.
I hypothesize, based on the companies in my research, that the more
interested top leaders are in institution building for the long term, the
more likely they are to involve more people in institutional work and
reward it with recognition and resources. A Cemex manager in his fi rst
country manager post expressed surprise to the chairman, Lorenzo
Zambrano, at how much time he had to spend making relationships
with government offi cials and wondered if he should be doing it.
“Welcome to top management,” Zambrano told me he replied.
Relatively few people hold formal responsibility for these external
interfaces as their primary jobs, and indeed, institutional work is less
effective in terms of impact on external stakeholders when it appears to
be “just a job.” So instead, many others perform institutional work as
volunteers, giving meetings and community service projects a ring of
authentic motivation. This is not a hard sell for people either native to
the area or long-term residents, because there is an emotional pull of
place that makes institutional work desirable, so they are willing to vol-
unteer personal time to do it, sometimes initiating efforts and taking
others in the company with them. For others whose careers take them
across geographies, institutional work is a way to connect their internal
roles with the place they now live, making them feel less rootless and
more at home.
Leaders from global companies operating in developing countries
are often asked to advise on emerging issues where global experience
could be useful. That requires special diplomatic skill: being able to
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The Practice of Leadership
appear neutral and interested in the host country, rather than interested
in the company or home country. A leader in India was typical in pre-
senting the company’s agenda to the Minister of Commerce as a slate of
future-oriented issues that would help ensure India’s competitiveness.
Corporate diplomacy is particularly important where country inter-
ests differ or there is active confl ict (or long historical memories)—for
example, U.S.-headquartered companies in the Middle East, or Japa-
nese companies in China. Add to that challenge suspicion of foreign-
ers and concerns about their hidden agendas. Leaders must fi nd ways
to show that they act or advise in the interests of society, beyond
politics, as a company that is not tied to a specifi c government or inter-
est group but serves humanity. If the values are real, then leaders are
willing to invest in ways that refl ect them, not as a quid pro quo but as
a sign that they will be locally involved. An Indian company entering
Europe faced hostility from some government offi cials. Company
leaders, who could draw from a long tradition of social responsibility,
chose to make community investments that heralded their high
standards, and leaders spoke with offi cials primarily about their values
and how, once in a country, they would remain committed to its
prosperity.
When leaders come to see themselves in terms of societal purpose,
even across countries, they choose to perform institutional work,
including self-initiated unoffi cial international diplomacy. In May
2007, the chairman of IBM Greater China organized his own diplo-
matic mission to Washington, DC, meeting with senators, members of
Congress, and White House offi cials on both sides of the China issue
to build bridges and fi nd areas of collaboration, such as environmental
issues, because of his conviction that his role in a global company gave
him a unique perspective on both countries and a desire to see both
thrive as allies.
Claims of serving society are made credible and tangible when
leaders allocate time, talent, and resources to national or community
projects without seeking immediate returns, and when they encourage
people from one country to serve another.
Internalizing Society: Leading Service Beyond the Business
Corporate citizenship increasingly means more than corporate philan-
thropy; it is important institutional work that helps leaders reinforce
the purpose that endures in the face of business uncertainty.
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Leadership in a Globalizing World
IBM’s approach to corporate citizenship was closely connected to
its business competence—to harness the power of innovation in service
to the social and educational goals of the broader society. Leaders even
at middle levels saw this as a task worth their time. A Latin American
executive responsible for the small and midsized business sector felt
that IBMers were increasingly using an external or societal lens to view
IBM: “I see a change in the way we think about social responsibility.
Twenty years ago, I think the focus was, do the right thing internally.
Before, it’s like I see a problem in the society, in the community, and I
don’t care, because this is not inside IBM, so I have nothing to do
with it. The change right now is to leverage the size of IBM and do the
right thing outside our organization, into the whole supply chain with
providers and customers.”
A wide range of services can be performed at various levels, from
international activities in collaboration with the United Nations
(e.g., P&G’s Children’s Safe Drinking Water partnership with
UNICEF), large national projects in collaboration with government
ministries, products addressing unmet societal needs, or leading
employees and/or other stakeholders in short-term volunteer efforts
(e.g., IBM’s response to the Asian tsunami, or Cemex’s engagement of
small distributors in Latin America in community service days). 11
Like Omron, Cemex’s attention to social needs in particular
places generated ideas that led to signifi cant innovations: antibacte-
rial concrete, which was particularly important for hospitals and
farms; water-resistant concrete helpful in fl ood-prone areas; or used
tires converted to road surface for countries with rapid growth in
road construction. An idea from Egypt for saltwater-resistant con-
crete, helpful for harbor and marine applications, became a product
launched in the Philippines. This was an emphasis of CEOs in both
companies.
Institutional work has the greatest impact, and more people are
likely to engage in it, when leaders link values with company capabili-
ties, solidifying the institution and resting it on fi rm foundations. The
leader of IBM for Europe and the Middle East encouraged IBMers in
Egypt to work on a voluntary basis on an initiative called Building
Bridges to the Arab World in partnership with the National Council of
Women in Egypt, chaired by Egypt’s First Lady. Building Bridges to
the Arab World combined technology (a Web portal for Arab women),
community service, diversity goals and women’s empowerment goals,
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57
The Practice of Leadership
and government relations opportunities both in Egypt and for a U.S.
company in an Arab region.
Institution building connects an extended family of partners across
an ecosystem. Cemex started Construrama, a distribution program for
small hardware stores, in 2001 in response to competition from Home
Depot and Lowes, U.S. construction product companies that were
then entering Latin America. Cemex drew on its values to seek dealers
with integrity who were trusted in their communities; the company
rejected high-growth/high-margin candidates whose business tactics
didn’t meet Cemex’s ethical standards. Construrama offers training,
support, brand recognition, and easy access to products for small hard-
ware stores, including sometimes the fi rst computers and Internet
access for these small enterprises. By the mid 2000s, this network in
Mexico and Venezuela was the equivalent of the largest retail chain in
Latin America, and it was expanding to other developing countries.
Cemex owns the Construrama brand and handles promotion but
doesn’t charge distributors, operate stores, or have decision-making
authority, although service standards must be met. About a third of the
Construrama management team at headquarters spends six to eight
months working at the stores. Partners participate in councils on a
rotating basis. Among the Cemex values that are disseminated to part-
ners is participation in community-building philanthropic endeavors,
for example, contributing people and materials to expand an orphan-
age or improve a school. A Cemex executive referred to the societal
sensitivity that produced Construrama as “understanding the last link
in the value chain.”
Widespread opportunities for individuals to use company resour-
ces to serve society further institution-building goals. In 2003, when
IBM’s business emphasis had shifted to on-demand computing, the
company launched On Demand Community, an intranet site for
technology tools designed to improve schools and community orga-
nizations. Three years later, 75,000 employees (over 20 percent of
the population) had performed nearly 3.5 million hours of service.
IBMers can clock their volunteer time and at 50 hours get a certifi –
cate of recognition from their country head and be eligible to apply
for a grant for that organization based on IBM worldwide standards.
Many people love the service for its own sake and forget to clock their
hours.
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Leadership in a Globalizing World
Values Evangelists: Communicate Iconic Stories
to External Stakeholders
The stories leaders tell refl ect strategic choices about which capabili-
ties to highlight or which relationships are valued—and thus, what
future choices might be made in an uncertain world. For Omron, the
safety and health benefi ts of their products and their particular concern
with people with disabilities refl ects Omron values but also the con-
tinuing potential for future contributions to society that are important
to industrial customers and acquisition targets who want to know that
Omron will endure.
Procter & Gamble’s Children’s Safe Drinking Water (CSDW) ini-
tiative, in partnership with the United Nations, shows that the com-
pany values societal benefi ts for children suffi ciently to fund a nonprofi t
to continue the distribution of an unprofi table product. CSDW is the
next incarnation of an unsuccessful effort to establish a market for
water purifi cation tablets in Africa; instead of abandoning the product,
P&G converted it from a for-profi t commercial category to a contribu-
tion to a nonprofi t organization. The story of the rapid evacuation of
all P&G people to Egypt during the war in Lebanon is another iconic
demonstration of the company’s PVP, making real the value of putting
people fi rst.
For IBM, disaster relief efforts are one of many similar examples,
showing that IBM is there to serve humanitarian needs quickly. IBM’s
cultural heritage preservation projects in Egypt, Russia, and China; an
African American oral history Web site in the United States, and an
English-Arabic social networking project all serve many institutional
purposes beyond goodwill in the marketplace or with government offi –
cials. They highlight the company’s desire to build long-lasting relation-
ship with particular groups and honor their cultures. Such projects also
help to alleviate some fears about globalization by showing that a global
company can support the deepest emotions of national and local pride
Iconic stories give employees a way to talk about social purpose
that show that the company can make big commitments without an
immediate business goal and deliver on them: “Much better than talk-
ing about the weather,” an executive in Egypt said, “and it demonstrates
that the company cares about more than maximizing sales, especially
important for an off-shore company.” “If we are participating in the
community, people see that we are willing to make commitments for
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59
The Practice of Leadership
the long haul, that we’re a company oriented toward building long-
lasting relationships,” an executive in India said.
The external value from investing in principles reinforces internal
commitment as well as motivation to continue institutional work.
A Latin American executive told this story: “Last year, a good friend of
mine that works for another large international company called me
because a family member had an accident and became disabled. He
said, ‘Marcelo, I know that IBM has very good programs. Is there any-
thing that you can do to help me to help my family, because I know that
IBM is the best company for this.’ When you receive this kind of phone
call, it’s the prize—this is the momentum that outsiders see, a company
that is here helping society.” Many others had similar stories.
Toward Institutional Charisma
Charisma is a powerful force for emotional attraction, a kind of social
magnetism that motivates and inspires and can keep believers adhering
to a cause even with uncertainty of outcomes or uneven direction—like
the ancient Israelites of Judeo-Christian lore wandering in the desert
for forty years searching for the Promised Land. But, as Rakesh
Khurana has argued, it is an ephemeral and misleading basis for orga-
nizational viability, and it puts too much reliance and emphasis on a
single leader and his or her individual qualities. 12
Thus, the top leader’s task is paradoxical. He or she has to express
and exemplify the values while routinizing charisma so that it spreads
throughout the organization, with many people performing institu-
tional work so that the entire organization holds emotional appeal, and
successors can convey the founding ethos and take it in new directions.
Reverence for a founder or purpose-establisher must be readily trans-
ferable to anyone representing the organization. That leader must con-
tinue to fuel the passion at the heart of institutional work while
remaining aware of the distinction between organization and person.
He or she must convey that the institution is larger than any one per-
son, so that people are not following a leader but rather are following
the values and principles of the institution.
When institutional work is done well, the ultimate results might
not be apparent for years; survival and longevity can’t be known in the
short term of fi nancial reporting periods. But the emotional impact can
be immediate and powerful, and that can be measured by loyalty and
commitment in the face of alternative choices, recruitment of others to
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60
Leadership in a Globalizing World
join, expressions of belief, and efforts by individuals to volunteer for
institutional tasks, above and beyond their jobs. Institutional ground-
ing in purpose and values might attract and hold customers that are not
solely transaction-oriented. And if the institution has coherence and an
enduring purpose, then the inevitable change of an uncertain world
should be less threatening.
Sustaining the institution also requires resource attraction, so
fi nancial performance matters. But some leaders are willing to sacrifi ce
short-term fi nancial opportunities if those are incompatible with insti-
tutional values—for example, Banco Real walking away from custom-
ers that did not meet its tests of environmental and social responsibility.
Sometimes this is justifi ed in risk reduction terms, but it is a signal that
the interests of the institution in the long term transcend short-term
transactions.
Leading Under Complexity: Integrative Work
Globalization brings more moving parts, more variables in play simul-
taneously, and more dimensions of interest. There is a rapid fl ow of
people, money, and ideas in and around the organization. An intensely
competitive global information economy places a high premium on
innovation, the faster the better, and innovation itself often refl ects a
new connection between previously unrelated elements or entities that
now require further integration. Information has a short half-life—
“use it or lose it.” So there is more need to get ideas connected to
tangible products and services, and to connect innovations with appli-
cations and users. Mergers and acquisitions add further complexity,
and their success rests on the effectiveness of integration among the
previously unconnected organizations. The important challenges and
opportunities lie across boundaries.
Open access and communication irrespective of levels are increas-
ingly apparent everywhere in the world, even in countries with more
authoritarian traditions. Information technology facilitates direct access
and rewards those who seek and spread information. Some of this is
generational; younger employees, even in elder-revering countries, are
less hesitant than older employees to e-mail the CEO directly.
Integration in the face of complexity is harder to effect through
formal structures, which are too rigid to refl ect the many multidirec-
tional pathways for resource or idea fl ows. Informal, self-organizing,
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61
The Practice of Leadership
shape-changing, and temporary networks are more fl exible and can
make connections or connect bundles of resources more quickly. For-
mal positions come to resemble a home base for people who are highly
mobile in terms of daily tasks, projects, work relationships, group mem-
bership, and physical location. Matrix organizations, in which individu-
als report to two bosses representing two dimensions of their tasks (e.g.,
reporting to a functional head and an industry head or a geographic
head), become what I dub a “matrix on steroids.” In a multidimensional
matrix, people are accountable along many dimensions simultaneously
and consecutively, with multiple projects and with multiple interfaces
that enable them to assemble resources for those projects.
Globalization thus magnifi es the integrative work that leaders must
perform. Leaders must ensure that ideas are captured and people con-
nected. Top leaders must facilitate integrative work on the part of others
in the organization. They must enable more people to make more
connections, establishing roles and processes for connectors or integra-
tors who link other people or link any set of resources to one another—
serving as idea scouts and transfer agents. As they do so, they must let
go of full control—so that self-organizing can take place, or decisions
can be made by integrators connecting across boundaries. Leaders do
not stand “above” on a vertical dimension; they lead by facilitating hori-
zontal, diagonal, or multidirectional connections. The decisions that
top leaders retain involve choices about which potential pathways to
endow with resources to start them moving—that is, which broad initia-
tives to fund or which pieces of the organization to combine formally in
order to facilitate closer connections between related parts.
“Management by Flying Around”: Convening, Connecting,
and Building Social Capital
MBWA (“management by walking around,” a famous Hewlett-Packard
practice that built a strong culture in its early days of growth) is too
slow for a globalizing world (and many people might be out of the
offi ce anyway). More appropriate for leaders is MBFA, or management
by fl ying around.
MBFA is literally true for IBM’s CEO; when Palmisano circum-
navigates the globe, the company plane picks up key executives for cer-
tain legs, providing integration in the air as well as on the ground for
the key customer or offi cial meetings. Large numbers of other IBMers
log more conventional air miles. Though tools and technology can be
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62
Leadership in a Globalizing World
globally integrated and support routine work and problem solving
(e.g., a test engineering system that can diagnose and solve problems in
any plant from any location, remotely), nonroutine issues call for phys-
ical presence. A senior leader said, “If there’s a problem or a critical
situation, we darken the skies”—that is, send people to the problem.
Integrative work at the top involves frequent convening of groups
cutting across the organization along many dimensions and expecting
them to collaborate as well as serve as connectors between and among
their home units. Groups might meet based on responsibility for a step
in the value-creating process—for example, global technology, strat-
egy, and operations—or various cuts through the organization, includ-
ing geography leaders, functional leaders, or product/service leaders.
There might be issues groups, permanent or ad hoc. They might meet
face to face at longer intervals but hold conference calls at shorter
intervals—voice communication is used even in technology companies
for substantial conversations, with e-mail relegated to short factual
messages.
Leaders’ investments in face-to-face meetings build their capacity
to integrate. A Latin American executive said, “The leaders, they have
to like people. They have to have a strong relationship with people, a
face-to-face relationship,” he said. He visits people in the nine coun-
tries in which they work to build trust—and also because he needs
direct observation to make diffi cult decisions, as in cases of poor job
performance. Even though his team of direct reports at Latin Ameri-
can headquarters does not work in the same building, he convenes
them often, which is important for conveying the same messages to
everyone, providing a common platform for autonomous action.
Another executive in the region shares that belief, so she provides
incentives for her country-based team to spend an occasional week
working in another country.
Letting Go at the Top: Lowering the Center of Gravity
and Encouraging Self-Organizing
To realize his goal of transforming IBM into a globally integrated
enterprise in which the best of IBM from anywhere could get to cus-
tomers quickly, CEO Sam Palmisano is seeking to lower the center of
gravity. The idea is to locate decision making lower in the organization
and into the points of connection with customers. In his theory, those
dealing with customers should be the ones to integrate IBM, taking
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63
22 The Practice of Leadership
innovation to apply to customer needs with a minimum of organiza-
tional or operational barriers by requesting and negotiating for
resources directly, without going up one hierarchy and down another.
Circles of infl uence should replace chains of command, and people
should be trusted to set priorities responsibly, starting with the cus-
tomer as the focus for integration, as stated in the IBM values.
To realize this theory in action, Palmisano has made a few radical,
symbolic changes. Rather than maintaining the tradition that career
progression involves moves upward, ever closer to regional and global
headquarters, he stressed other dimensions. In Europe, he moved
about fi ve thousand people and two hundred executives above the
country level out of European headquarters and back into country
organizations. He elevated the role of account manager to high status,
signaling its importance, by asking a few key executives to move from
what had been top vertical positions to become executives for big
accounts. A Latin American executive responsible for the relationship
between IBM and customers—pre-sales, post-sales, and continuing
customer satisfaction—said “It’s a diffi cult mission, but I like it. I like it
because I believe that this is the most important position inside the
company. Because we have to integrate the other organization, we have
to put the customer interest in front.” For example, his group would
determine the best platform for a customer (UNIX, Intel) and then
persuade the hardware organization to supply it.
For Fabio Barbosa, CEO of Banco Real in Brazil, a measure of his
success in leading the bank to embrace social and environmental
responsibility as its mission is that he lost control of the effort, as he
put it. In the beginning, projects started with top leaders identifying
priorities. But a few years after the new direction was established, man-
agers started contacting one another to create and execute on initia-
tives that he knew nothing about. Now they work across departments
to integrate the organization themselves. Similarly, when companies
such as P&G expect innovation to come from the fi eld and from out-
side the organization, leaders are lowering the center of gravity to per-
mit people to go directly to the source of ideas and then fi nd the
resource to execute, within P&G principles. Shinhan Financial Group
accomplished a high-payoff integration of Shinhan and Chohung
Banks, even before an agreement with Chohung’s union permitted for-
mal integration, by establishing a large number of task forces linking
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Leadership in a Globalizing World
the lower-level people at the two banks to discuss issues; that produced
self-generated modifi cation of practices without top leader direction.
Nick Donofrio, IBM executive vice president, encourages nearly
190,000 technical people to think of themselves as working for him,
and he tries to answer hundreds of daily e-mails personally, counting
on this as a major bottom-up source of information about issues, oppor-
tunities, and developments. Following the successful dialogue in 2002
that led to the IBM values, Palmisano sponsored a second huge conver-
sation, an Innovation Jam in the summer of 2006, in which 140,000
people identifi ed possibilities for innovation.
Self-organizing communities, operating outside of formal struc-
tures, are a valuable resource if top leaders can accept that they are not
in control but can take advantage of the results of lower-level integra-
tive leadership. The driving force for self-organized groups is curiosity
and interest on the part of the people themselves, if left free to conduct
the dialogue. In India, a group of engineers self-organized after the
tsunami to provide support for disaster relief, asking their nominal
bosses to endorse commitments they had already made and place a few
phone calls to government offi cials on their behalf.
For IBM, a recent self-organized virtual worlds community got
IBM involved in this new technology, which burst on the scene in 200
3
with Second Life. At least a hundred people interested in and experi-
menting in virtual worlds found each other through company chat and
created an ad hoc virtual universe community. They started informally,
then found an IBM executive to support them as a more-or-less offi cial
activity. Dozens of people chatted via their avatars on Second Life, and
later, other platforms. There were weekly calls, and the phone line was
open when in the virtual world; dozens of people would participate,
though mostly not by phone. A participant said, “This was one of the
most exciting years I’ve spent in IBM, to watch this group come together
outside of every structure IBM has. We acted like a bottom-up corpora-
tion or a corporation of free-lancers. People were doing it on their free
time.” Eventually, virtual worlds was designated an emerging business
opportunity with offi cial funding for three years. CEO Palmisano pro-
vided public endorsement of the concept in Beijing in November 2006
when he announced the results of the Innovation Jam and a partnership
with the Chinese Ministry of Culture by showing his avatar entering the
Forbidden City. More recently, in another example with signifi cant
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The Practice of Leadership
implications for the business, a self-organizing group in the United
Kingdom started IBM’s “green computing” initiative.
Relying on the Middle: More Leaders at More Levels
The complexity of globalization tends to induce and favor distributed
rather than concentrated leadership. That is, fewer people act as
power-holders monopolizing information or decision making, and
more people serve as integrators using relationships and persuasion to
get things done, a hallmark of a fl atter organization.
Formal assignments as integrators or connectors are common in
global companies, and integrative work is an expectation for many
more people. A large number of people juggle multiple responsibilities
and work with a large set of peers drawn quite broadly throughout the
organization, sometimes leading initiatives, sometimes leading the fl ow
of ideas that keep other initiatives moving. Some jobs are explicitly
devised to connect a mix of projects and initiatives to ensure that they
align with major strategic priorities for ever-larger chunks of the busi-
ness. These are leadership tasks requiring persuasion to keep resources
over which the person has no direct control on the same track toward
the same destination.
At a large European multinational company, leaders recalled the
time when country organizations operated separately and only the few
top executives in each geography were in contact with the rest of the
company. Now this occurs at many levels, as people engage in regular
direct communication with their peers in other geographies, especially
as they take responsibility for marketing, distribution, and product
innovations. For Cemex such direct contact is part of spreading local
innovations quickly to ensure that everyone can tap best practices.
People speak of needing to understand much more about how Cemex
operates elsewhere, including corporate strategy, so as to fi gure out
how to combine the thinking of various locations.
Mentoring becomes a much more important part of the leadership
role under such circumstances because of the need to transmit knowl-
edge faster that increases people’s ability to use their judgment and tap
a network of relationships—that is, to acquire and use what is now
called social capital. Cemex expects managers to train backups so the
managers can travel, in essence embedding a leadership sensibility at
lower levels. The founder of Infosys in India refers to his current posi-
tion as “Chairman and Chief Mentoring Offi cer.” At IBM, the best
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Leadership in a Globalizing World
leaders coach large numbers of people. The chairman of IBM Greater
China, considered one of the top information technology executives
and best CEOs in China, personally mentors about one hundred
people: twenty-fi ve formal and active mentees, twenty-fi ve informal
mentees, and around fi fty “graduates”—former mentees with whom he
maintains a close personal relationship. Sam Palmisano stopped only
because he became the CEO; he said that his staff told him that if he
maintained mentoring relationships it might be misinterpreted as a
sign of who was favored. Palmisano spends about 20 to 25 percent of
his time on executive development; planning for future jobs and for
successions; developing skills, culture, and climate; and thinking about
the personal characteristics associated with leadership
Those doing integrative work sometimes wear many hats. For
example, a woman in Egypt serves as communications manager for the
country, reporting to the country general manager and the communi-
cations head in Europe; regional manager for diversity for the Middle
East (Arab countries and Pakistan), reporting to Europe; and liaison
for community relations, reporting to a manager in the United
Kingdom. She works closely with the human resource (HR) depart-
ment and government relations in Egypt and in Europe on other ini-
tiatives, but she calls herself a volunteer on these projects, because they
are not part of her formal appraisal. Her effectiveness as a leader and
her ability to wield infl uence derives not from what she does in any one
of the areas but because she connects all of them; she is a signifi cant
idea conduit. She contrasts the current approach with the past: “Before,
you only have your region, and there is a ceiling you cannot see through.
If you go to a higher level, then you are escalating. Now I can exchange
e-mails with any corporate director. This is the beauty of the matrix
organization—you fi nd the know-how anywhere, any time. The
moment you ask for support, you will fi nd it.”
At IBM, rising stars among leaders manage cross-cutting roles and
relationships of many kinds and do integrative work well beyond their
formal titles. In Russia, the research lab director feels responsible for
helping customer-facing teams and business partners leverage IBM
research technologies; she regularly attends sales meetings with cus-
tomers to add a technology perspective. She was instrumental in
encouraging IBM to locate a lab in Moscow in the fi rst place, making
the case that a lab in Russia is part of a global ecosystem strategy, pro-
viding technology experts on the ground who could collaborate with
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67
The Practice of Leadership
sales teams, clients, and business partners to answer questions, learn,
and bring back ideas for worldwide projects. She reports locally to the
country general manager and worldwide to a vice president of develop-
ment in the systems and technology group in the United States. She
has dotted-line relationships to the other product lines on which the
lab was working. She is a member of the IBM Academy of Technology,
three hundred technology professionals that advise on technology pol-
icy and direction, for which she led a team studying globalization issues
related to technology. She also interacts with U.S. headquarters as a
member of informal teams with people in strategy, sales, services, and
research. She works with labs in Mainz, Germany; Poughkeepsie, New
York; and Beijing, China, and participates in bimonthly lab directors’
meetings to set priorities and assign projects among labs. And, to top it
all off, she maintains numerous informal relationships. She fi elds near-
daily instant messages from a colleague in California that he sends
before he goes to the gym in the morning to learn from her, ten time
zones away, if there are any issues he should address during the day.
Deploying Social Capital: Politics and Persuasion
When integrators lead projects or initiatives that require cross-cutting
groups, they are often working with people whose participation has a
voluntary component. Broad priorities can be set by high-level leaders,
but within those there is often freedom to negotiate the work itself with
the team and the managers—although negotiations can sometimes be
drawn out and politely contentiousness, slowing down the speed of
project delivery, and there is always the issue of whether people can
leave a project in the middle to go to a sudden high-priority task. It is
challenging to get the right people to the right tasks, especially as tech-
nology changes and some regions enjoy rapid growth. A leader said,
“Can you fi nd the talent fast enough, and if you do, will they let you
move it, and how many fi ghts do you have to have before it fi nally
moves?” Cemex managers were expected to train backups so that they
could leave their posts for three months to two years to work on rapid
integration and upgrade of operations coming from acquisitions.
Leaders below the top who guide such integrative groups often
must attract both fi nancial and human resources for projects, with their
team thus enlarging and shrinking like an accordion. The money often
comes from multiple budgets and the people from many different
groups, recruited as individuals or because an intact team took on one
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Leadership in a Globalizing World
aspect of a project at a particular point in time, so leaders must be
beggars and borrowers. Project leaders knock on doors for resources,
stop to see many people, and engage in arguments over priorities,
because managers of other efforts do not want to lose good people. In
general, integrative projects get support because they meet two tests:
they are strategic to the business (which attracts capital) and motiva-
tional to the individual (which attracts talent). In China, a young
woman relatively new to IBM said that although she thought her man-
ager was a very good boss, she did not need to go through him to make
decisions or fi nd resources; she went directly to her peers. She assem-
bled a team by using personal persuasion and the appeal of her p
roject
to encourage already-overscheduled IBMers to join her. Access across
boundaries frees people from constraints, such as waiting to be told
what to do, while adding to their responsibilities for taking initiative. A
distributed organization has more ears to the ground, but people have
to do something with what they hear. Success in many jobs requires
spotting opportunities, generating ideas, and getting them moving.
Finding the resources to beg for in the fi rst place is often a function
of leaders’ social capital—their stockpile of personal relationships with
many people. Though technology tools are increasingly common to
help people fi nd one another, I found that even tech-savvy leaders still
rely on their own personal networks to get to the right resource quickly.
The director of IT for a company’s Middle Eastern technology center
observed that he relied on “the old-fashioned way, the knowing people
type thing: I know a person who might know a person.” IBM’s execu-
tive vice president for technology and innovation felt that personal net-
works of people one had met or worked with were often better sources
for key assignments than databases of resumes.
Note that this mode of operating has characterized fast-moving,
highly innovative companies in technology fi elds since the opening of
the global information age, as this observation from my 1983 13 book,
The Change Masters , makes clear:
Though innovators are diverse people in diverse circumstance, they
share an integrative mode of operating which produces innovation:
seeing problems not within limited categories but in terms larger
than received wisdom; they make new connections, both intellec-
tual and organizational; and they work across boundaries, reaching
beyond the limits of their own jobs-as-given. They are not rugged
individualists as in the classic stereotype of an entrepreneur but
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The Practice of Leadership
good builders and users of teams, as even classic business creators
have to be. And so they are aided in their quest for innovation by an
integrative environment, in which ideas fl ow freely, resources are
attainable rather than locked in budgetary boxes, and support and
teamwork across areas are the norm.
[ J]ust about all innovating has a “political” dimension, . . . [b]ut
I am using “political” not in the negative sense of backroom deal
making but in the positive sense that it requires campaigning, lob-
bying, bargaining, negotiating, caucusing, collaborating, and win-
ning votes. That is, an idea must be sold, resources must be acquired
or rearranged, and some variable numbers of other people must
agree to changes in their own areas for innovations generally cut
across existing areas and have wider organization ripples, like drop-
ping pebbles into a pond. 14
Leading Under Diversity: Identity Work
Classic international trade of past decades could be carried out with
relatively few points of contact between operations in a variety of coun-
tries, and within each, organizations could rely on somewhat homoge-
neous workforces, with expatriate home-country representatives at the
top of the pyramid who might even be housed in segregated enclaves
echoing home-country conditions. Although there were often great
differences within a country in ethnicity and race, as well as gender
divides, these were often managed by other forms of segregation and
subordination. Only relatively recently have even pluralistic countries
recognized diversity as a matter of legal rights and overt discussion—
meaning that people would not have to pretend that differences do not
exist and cannot be mentioned.
Globalization has heightened attention to workforce composition
and has been accompanied by growth in the number of countries with
equal opportunity legislation—and that references diversity merely
within a country. Many of the geopolitical confl icts of this era have
involved ethnic or religious groups engaged in identity politics writ
large, sometime with a national dimension, sometimes with an ethno-
religious dimension. Within companies, today’s global leaders must
acknowledge and contend with much greater heterogeneity under con-
ditions that make it impossible to maintain myths regarding the
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70
Leadership in a Globalizing World
homogeneity of internal and external players. Globalization increases
the variety of people who potentially interact as well as the dimensions
of difference among them. Heterogeneity is introduced within organi-
zations through mobility, the dispersion of people from particular loca-
tions across other locations, as well as through structures that require
communication across locations. Although the number sent on long-
term international assignments might be a small percentage of the
population, the number of people who regularly communicate with
counterparts in culturally different locations is a larger proportion,
and, arguably, a growing proportion as global integration increases. In
short, leaders must become adept at identity work.
Some kinds of differences are obvious and task-relevant, such as
linguistic differences. Some are matters of private life, including reli-
gious preferences, that are increasingly salient because of geopolitical
confl icts. Some are immutable, such as gender or skin color, with the
meaning ascribed to them varying itself according to differences based
on location, nationality, or ethnicity. The structural point is merely
that there are more dimensions of difference recognized, more types of
bundles of those differences, and greater likelihood of encounters with
strangers carrying those differences.
The sorting of people into social categories carries assumptions
about the attitudes, approaches, capabilities, and biases of people in
those categories, and categories can become bases for self-identity and
the formation of identity groups based on those categories. Differences
can also become the basis for rankings of superiority and inferiority and
thus for systems of dominance by people of some types over those of
another type—such as a bias for home-country natives or a preference
for the approaches or interests of those who have typically held power.
Company identities also create an inclusion challenge when they
refl ect not only company culture differences in operating styles but also
loyalties that infl uence individual identities. Merger and acquisition
activity, whether cross-border or within a country, poses another diver-
sity challenge for leaders: how to manage differentiated identities and
integrate people and their work effectively.
Identities, whether of individuals, groups, or an organization as a
collective, become clear when encountering others who are different.
Identity is differentiation, so it takes the experience of an “Other” for
“me” to know what is “not me,” and therefore “what I am.” At the risk
of anthropomorphizing, I can argue that even organizations often do
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71
The Practice of Leadership
not bother with explicit articulation of what they are and stand for—
their values—as long as they can recruit people for similarity and then
slowly and carefully socialize people into their tacit culture, thereby
assuring suffi cient homogeneity for operating purposes. Procter
& Gamble, for example, was long known for promotion from within
and for a conformist culture; this was captured in the characterization
of its employees as “proctoids.” It was only when P&G made a very
large acquisition (Richardson-Vicks) that the company formalized its
institutional identity by crafting the PVP (purpose, values, and
principles).
Social and linguistic differences and the identities that fl ow from
them constitute a leadership challenge. They can produce miscommu-
nication, misunderstanding, mistrust, divisiveness, distraction, inequal-
ities, and resentment of inequalities—in short, centrifugal forces within
an organization as people view how “people like me” are treated and as
they must encounter otherness. Externally, they can complicate the
task of diplomacy, or securing what the organization needs from power
holders whose identity and interests are different.
Some progressive U.S.-headquartered companies have dealt with
diversity by encouraging formal networks for people representing
social categories assumed to have a harder time fi tting into the main-
stream, which is assumed to be white, male, and American—thus there
are networks for women, African Americans, Hispanics, Asian Ameri-
cans, gays and lesbians (and related sexual orientations), and so forth.
For one such company, diversity and inclusion are called centerpieces
of its human resource strategy. The company counts more than forty
networks in the United States alone, and supports their meeting on
company time if they help recruit people like them to join the com-
pany. There are many positive changes as a result. The company has
increased the numbers of people from previously excluded categories
and given them a vehicle for meeting others like them, trained manag-
ers about what various groups might want or need from the workplace,
and spread some U.S.-originated policies (e.g., regarding work/family
issues) to other countries. But the company is still deliberating about
how to develop global leaders capable of working across countries in a
globally integrated fashion, because diversity has come to mean frag-
mentation. Diversity in practice requires choosing to join a special
interest group. Moreover, diversity training has reinforced stereotypes
by trying to show how people from previously underrepresented social
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72
Leadership in a Globalizing World
categories might be different from prevailing norms, even if actual
people do not always fi t into a single social category. For that company,
it is not clear what to do beyond the numbers game or policy changes.
What skills do leaders need in a world of diversity?
This is the leadership challenge in a globalizing world of greater
contact among people of many varieties. Global leaders must confront
identity issues in a way that unites people while acknowledging individ-
uality. Leaders must become much more interpersonally aware than was
the norm when whoever they were or whatever group they came from
was automatically mainstream and dominant, and others (from subordi-
nate groups to “lesser” nations) adjusted and accommodated to those in
leadership positions without anyone explicitly saying anything about
it—it just happened. Today, dominance-and- subordination models are
fading from the best global companies. Home-country nationals can
no longer claim superiority, and they must create relationships of
reciprocity in order to work effectively across borders and boundaries.
Even without the pressures for fairness refl ected in equal opportunity
laws in a growing number of countries (for women and minorities within
those countries), companies originating from homogeneity-preferring
countries must deal with more pluralistic norms in other places where
they do business.
Identity work involves shaping awareness and action in terms of
both differentiation (acknowledging differences) and inclusion (fi nding
points of commonality). What is called “identity politics,” which con-
sists of hostility and confl ict, occurs when neither of these conditions
are met—when people feel that their differences go unacknowledged
and yet they do not feel membership in the wider group.
Tuning into Others: Respect for Differences
Leaders must develop their consciousness about others, noting the
things that are important to other people. They need an awareness of
differences and a willingness to honor them. American social theorists
in the school known as symbolic interactionism argued that all human
interaction depends on the ability to put oneself in the shoes of another,
but they wrote at a time when people could count on a common vocab-
ulary with roughly the same interpretive categories. Empathy, an
important aspect of what is now called “emotional intelligence,” is
made more diffi cult and becomes a higher, more conscious skill when
dimensions of difference multiply.
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The Practice of Leadership
Effective leaders in a globalizing world must attempt to read others
and put them at ease by managing their perception of the situation.
This is not the front-stage/backstage impression management and
facework described by Erving Goffman, which had the ring of inau-
thenticity and manipulation, akin to the photo opportunities of smiling
political fi gures at contentious international summits. Instead, it
involves gestures of respect and inclusion.
The CEO of Publicis Groupe, Maurice Lévy, is a master of iden-
tity work. He personally led the courtship of advertising agencies con-
sidered unattainable to grow Paris-based Publicis into the world’s
fourth-largest advertising and communications group, catapulting it
from far behind to highly profi table and able to continue to acquire
effectively. When I say “personally,” I mean by himself, unaccompa-
nied at intimate dinners with heads of target companies by aides, staff,
lawyers, or investment bankers. In three cases—the acquisitions of Hal
Riney in San Francisco, Saatchi & Saatchi in London, and Leo Burnett
in Chicago—Lévy devoted considerable time to personal bonding ses-
sions with the relevant CEOs, in which he revealed details of his own
family history (his father escaped from the Nazis) to show his values
and also observed carefully to see what mattered to each of the CEOs.
The courtship metaphor is often used, but Lévy went deeper, and he
saw how they—from each of their vantage points—viewed a French-
man and the feelings they would have about being part of a French
company. (Indeed, the Saatchi acquisition got a disproportionate share
of media in the United Kingdom for its size or value, under headlines
indicating that the French were conquering the British.) When
Saatchi’s CEO, Kevin Roberts, said that he didn’t want to have a boss,
Lévy took note—and seeing the value of many Saatchi practices, pro-
ceeded to treat the merger as a reverse takeover. But Roberts also
became so enamored of Lévy that he would do anything for him should
Lévy but hint—which made Lévy the boss without anyone losing face.
An important part of identity work is holding one’s own ego in
check in order to honor something important to others. At the fi rst
post-deal meeting of Publicis and Saatchi executives, when the execu-
tive teams were introduced to each other for the fi rst time, the Saatchi
chairman, who was British, made his opening speech entirely in French,
although he did not consider himself fl uent—a gesture of respect that
required humility (made even though Publicis executives were all good
English-speakers). Leaders of an Indian company that acquired a French
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74
Leadership in a Globalizing World
company suspended their rule of no alcohol at work to serve French
wine during the workday at their facilities, including their headquarters
in India.
Cross-cultural savvy is especially important for leaders who travel
frequently across countries, work on international teams, or meet with
their counterparts from other locations. A Mexican woman based in
Brazil who leads a Latin American function commented on contrasts in
behavior in staff meetings: “People from certain countries are very
direct and very passionate to say something. And from another coun-
try, very soft and tentative, but it is not because that person is not
involved or interested in his or her point.” The differences are clear,
whether stemming from country norms or individual characteristics,
but what effective leaders do is acknowledge that without making a
value judgment, and expect the same of the rest of the group.
Effective leaders also point to the importance of listening and
adapting one’s own style. Listening involves catching the meaning in a
range of accents. When Patricia Menenes got a global assignment to
manage from Brazil, she found an English teacher nearby who gave her
lessons over the phone so that she could recognize words in different
accents on telephone calls. An executive in Egypt is also sensitive to
accents, even within his country, deliberately using a thicker accent
with English words when talking with government customers, to make
them feel at ease.
Many IBMers who have worked across geographies have stories
about cultural tendencies, some told with admiration—for example, an
American expressing appreciation for Japanese culture because of team
members who are punctual, courteous, and willing to talk in the middle
of their night. But for the most part, leaders in cross-cultural or multi-
cultural situations seem drawn not to generalize about differences but
to fi nd commonalities with other IBMers or with customers in other
countries. Indeed, in interviews, they minimize the effect of differences.
An American IBM veteran leading a technical function in Moscow
answered my question “What’s different about doing business in
Russia?” by jokingly replying, “They speak Russian here.” Only then,
after establishing that people are people did she mention Russia’s unique
historical legacy of communism and shaky business practices that were
increasingly and rapidly changing to an international model. A Brazilian
who led the implementation of a global model in Italy, Ireland, and
Vietnam could point to the differences in how governments were
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75
The Practice of Leadership
organized or differences in accents but was most inspired by the
similarities everywhere in people’s passion for their children and fami-
lies. Other IBMers similarly downplay country differences and are quick
to point to cultural differences within countries that require equal or
more sensitivity—north versus south in Brazil, regions and ethnic sub-
urbs in the United States and India—or even differences across
functions—a British engineer described adjusting his style to differences
between research teams and customer-facing teams in Russia.
One important lesson from IBM’s diversity focus is that leaders
need not a set of stereotypes about countries or types of people but the
ability to see people as individuals and to put themselves in others’
shoes. What leaders provide in their messages about diversity is per-
mission for people to talk to one another more openly, to learn what it
is like for other people with different life experiences. “They take it
home, to their neighborhood, to families. Some people say it helps
make them much better people,” a Latin American leader said.
When leaders model and encourage acknowledgment of differ-
ences, individuals feel freer to express more aspects of their identity at
work, and sometimes that becomes a useful source of innovation.
Because of P&G’s long-standing commitment to respect in the face of
diversity, an executive in Brazil who was a native of Egypt served Mid-
dle Eastern food in São Paulo to an American visitor—and, more
important for the business, he used an Egyptian artifact with his team
to stimulate thinking that led to an important process innovation.
Forging a Common Identity: Toward an
Overarching Membership
Helping people to operate as members of a community rather than
isolated in fragmented groups has both technical and emotional
components. Without the right technical facilitators, comm
unication
is awkward and insuffi cient. Community requires a common language,
a common platform for communication, and processes—which is why
Cemex created “the Cemex Way” to make explicit and easy to learn all
of those routines that would help people in acquired companies feel
part of One Cemex and able to work out differences without conten-
tion. The technical infrastructure is important, because it increases
objectivity and makes certain things givens, not arenas for confl ict.
The technical side is not enough, however; that can be just bureau-
cracy. The main leadership work is on the emotional side, to forge a
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Leadership in a Globalizing World 3
common identity, a common feeling of membership, above and beyond
the ability to conduct transactions. Although the common language of
engineering or of managerial processes can provide a basis for connec-
tion, it cannot fully produce a sense of community. That feeling of
membership comes from being included as a whole person (feeling that
“people like me” have a place), having the opportunity to form emo-
tional bonds with others, and experiencing a kind of shared conscious-
ness, which helps people feel that they can understand each other and
come to think alike. P&G and IBM managers say almost the same
words when asked to explain why overt confl ict is so rare and why peo-
ple insist they do not take it personally if a request is turned down. One
said: “It’s the notion of an IBMer. We understand each other really very
well, and we speak the same language, and we share the same beliefs
and values. When issues arise, we are making some business decisions,
and it’s just done. Everyone understands.”
Omron leaders feel that the Omron Principles help them create
community not only within Japan, but also with acquired companies.
They use the Principles as a basis for dialogue, to fi nd a commonality
of values that then makes it easier for people from the acquired com-
pany to identify themselves as members of the Omron community.
Executives from two very different U.S. companies acquired by Omron
mentioned this, and noted that it helped them work through the differ-
ences with a Japanese company and educate Omron leaders in Japan
about the U.S. market.
For P&G, use of the PVP facilitated the smooth integration of
Gillette in 2006, its largest acquisition. A P&G country manager cre-
ated the basis for a new shared identity from day one of the formal inte-
gration, when he moved absolutely everyone to a new offi ce. Jim Kilts,
Gillette’s chairman and CEO who sold Gillette to P&G, described
Gillette as a “team” but P&G as a “family.” Not intended entirely as a
compliment (families don’t cut off low-performing members the way
teams do), this comparison indicates something about the quality of
community P&G has built that arguably makes it the stronger company
in terms of community, or at least the surviving one. (P&G has since
adopted some of Gillette’s get-the-team-to-perform practices.)
Global leaders must not only emphasize a common identity, but
also take active steps to reinforce it against all the centrifugal forces of
fragmentation. Shinhan Bank, a smaller, newer bank in Korea, acquired
Chohung Bank, a much larger and older bank with strong pride among
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The Practice of Leadership
its employees; leaders proceeded to put “emotional integration” (their
term) at the center of their merger integration strategy. The Chohung
union protested the acquisition announcement, with 3,500 union mem-
bers shaving their heads and piling the hair in front of Shinhan head-
quarters in Seoul—a dramatic example of identity politics becoming
high-cost confl ict. Negotiating with the union, Shinhan agreed to sus-
pend formal integration for three years—and then proceeded to inte-
grate in all but name well before the stand-still period was up. It did
this by emphasizing membership in a common endeavor through three
streams of activity. First was “dual bank”—separate but equal, and
ready to learn from one another, as people rooted in their Chohung or
Shinhan identity met in task forces discussing their practices without
any assumption of superiority or inferiority and no pressure to do any-
thing but talk. By feeling pride in their former identity as a source of
best practices, people could start to feel connected to the other bank.
Second was “one bank,” the stream of activities designed to produce
feelings of membership in something beyond their jobs, which was also
part of the institutional work Shinhan leaders performed to infuse
Shinhan Financial Group with meaning. Under the “one bank”
umbrella, for example, 1,500 managers climbed a mountain together at
one of Korea’s most historic shrines. The third stream, called “new
bank,” involved people on teams explicitly creating the future—a new
concept that would be owned and embraced by everyone together.
Sensitivity to dimensions of identity—that is, cultural differences
and how to overcome them—is striking in these instances of merger
integration because it is so obviously lacking in many mergers that fail.
A feeling of common membership comes from activities that by defi ni-
tion lie outside of anyone’s task role. That’s why joint community ser-
vice is so powerful as a way to transcend the many things that can divide
people. The “community” that leaders build overlaps with the organi-
zation but is not identical with the formal structure and boundaries (for
one thing, it might include suppliers of critical services, alumni, or
retirees).
Challenges
In many ways, all leadership is intergroup leadership, as I argue in
another paper, 15 and the enduring skills that help leaders respect
differences but forge a common membership are merely applied on a
larger scale, to more dimensions and combinations of differences, in a
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Leadership in a Globalizing World
globalizing world. Leading under diversity is diffi cult, both as leaders
manage themselves and as they set the context for others. There are
many reasons for this, stemming from biases to historical legacies to
the politics of interest groups to a common tendency for the identifi ca-
tion of differences to immediately turn into rankings of superiority and
inferiority. Furthermore, as people become more conscious of social
categories or aspects of their own identity, and as they see leaders will-
ing to permit them to express it, they push for more expressions of
difference at work. One global company that bans discussions or
expressions of politics or religion at work—which has helped consider-
ably with maintaining professionalism and business success as it does
business in confl ict-ridden regions—is now facing an employee push to
allow decorations on cubicles during religious holidays.
At the organizational level, it is still a struggle for many companies
to get away from home-country dominance. P&G people talk about
Cincinnati, IBMers about Armonk, and Cemex people about Monterrey
as though these places were persons. Cemex is referenced as though
divided between “Mexicans” and Others (though “Mexican” was
loosely used to encompass native Spanish-speakers from Latin America
and Spain). The huge global scope of these companies poses another
challenge in itself, and one not handled by the Internet. The sensing
part of sensitivity blossoms when there is face-to-face contact and time
for discussions that are not solely task-oriented.
The very diffi culty surrounding diversity has moved it out of the
HR department and into the C-suite more generally. Leaders must
consider identity work critical for their personal success and that of
their organizations.
Conclusion: Trends, Leadership Qualities,
and Further Research
This paper has outlined three kinds of leadership work that are particu-
larly important in a globalizing world. Organizations are being turned
upside-down (e.g., lower centers of gravity, self-organizing communi-
ties) and inside-out (e.g., internalizing society and social identities
while having more people on the boundaries connecting to society).
The argument in this paper describes a much more open-ended
aspect to leadership than what emerged from the so-called heroic or
Great Man theories of the past. The top leaders in the companies
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79
The Practice of Leadership
referenced seem most effective in leading change or stimulating inno-
vation, for example, when they establish the process but do not overly
constrain the outcome, when they set challenges or defi ne problems
rather than offer answers. They are confi dent in other people on their
team or in their organization and believe that, with an empowering
framework and strong capabilities, answers will emerge.
The top of any organization has always dealt heavily in symbols as
well as strategies. 16 The forces of globalization make leaders’ ability to
think through the symbolic consequences of their actions or to fi nd
symbols that create meaning even more important, because there is so
much information and so much fl ux.
It is easy to generate a list of qualities that leaders should possess in
the context that has been emerging over the past three decades, and
many writers have done so: systems thinking, initiative-taking, persua-
sion and diplomacy, a cosmopolitan outlook with a concern for collab-
orative solutions good for many people. Leaders need intellectual skills
in pattern recognition, seeing similarities and differences, systems
thinking, and framing and conceptualizing. Leaders need emotional
skills in empathy, self-awareness, warmth and respect, and ego man-
agement. It helps to be curious. It helps to like people. It helps to com-
municate with drama and clarity.
Perhaps effective leaders have always possessed these qualities. But
now they must exercise them with many more variables in mind, with
resources they cannot control, with attention to the hearts and minds
of other people who might have different assumptions or interests, and
with the utmost of diplomacy. Whatever their job description, they
must add the three important tasks encouraged by globalization: insti-
tutional work, integrative work, and identity work.
This analysis raises questions for further research, at both socio-
logical (macro) and social psychological (micro) levels. Among them
are the following:
• How much of the time of leaders, and at which levels, is spent
performing institutional, integrative, and identity work in
addition to routine or technical responsibilities, and how does
this change with the amount of globalization? Can these aspects
of the work of leaders be deconstructed to make them scalable,
so they can be studied, analyzed, and used in practice? How
does the performance of these aspects of leadership work
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Leadership in a Globalizing World
correlate with overall business performance and longer-term
business sustainability?
• What difference does top team diversity make? Does
international diversity on the top team increase effectiveness or
produce competitive advantages? If so, of what kinds? What are
the mediating variables? And how are truly global top leaders
developed?
• How does the relative tolerance or restrictiveness of a national/
local context affect the ability of global leaders to function
effectively? Are global leaders more likely to emerge from some
contexts rather than others? What impact can they have in
contexts that are dissimilar?
• In terms of leader qualities, does globalization mean that
leaders’ ability to send messages (i.e., to communicate their
themes or visions) must be balanced by leaders’ ability to
receive and interpret messages from a diverse set of others?
• In globalizing companies, do leaders’ national origins and/or
education tilt decisions in particular directions? That is, are
there patterns in terms of strategic choices, process preferences,
and public engagement based on the national origins and
formative experiences of leaders? Or are those differences
irrelevant?
• Can a social contract be forged with the public across diverse
countries with confl icting societal needs and requirements? As
the ecosystem for business reaches its theoretical limits,
encompassing potentially the entire world, how can leaders
maintain the national/local bonds that provide legitimation?
Will the bases for legitimacy shift, as global bodies legitimate if
not authorize companies, and will something resembling a
global society be created—like the cosmopolitan citizens
suggested by some writers?
• What are the circumstances under which universal values truly
guide behavior? And what are the consequences? Will that
create convergence among countries or merely provoke
particularistic backlash?
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The Practice of Leadership
It is clear that the study of leadership in a globalizing world has a
world’s worth of potential to enrich the interplay between theory and
practice. In addition, to the extent that global leaders are developed
and mobilized by companies that operate under more universalistic
values, those leaders themselves have enormous potential to improve
the state of the world. Thus, global leaders are not only worthy of
study, they should be actively developed at all those institutions of
higher learning at which researchers are encouraged to translate their
fi ndings to the classroom.
Notes
1. The research is described fully in my book, Supercorp: How Vanguard
Companies Create Innovation, Profi ts, Growth, and Social Good, New York: Crown, 2009.
The project involved a multi-year study of more than 15 companies with interna-
tional scope, based on approximately 350 interviews in 20 countries. The companies
were chosen opportunistically because of their expressed interest in further globaliz-
ing and their willingness to allow access (in several cases I was invited as a consul-
tant), but all have been externally identifi ed by at least one group as high reputation
and high performance. All of them made signifi cant changes to their strategies and
structures between 1998 and 2003 in response to global challenges and aspirations.
The companies anchored in developed countries increased their investment in
emerging market countries, and several of the companies from emerging economies
increased investment in the developed world. Even the oldest companies in this
group, with international operations for one hundred years or more, changed their
international strategies and organizational structures or processes after the year
2000. All of the companies have CEOs who are widely admired, some of whom led
turnarounds following predecessors who stumbled.
The companies I studied can be arrayed along a continuum in terms of degree of
globality. At the least global end, although the company earned 90 percent of its rev-
enues outside its home country, about 80 percent of its employees were natives of the
headquarters country, even those working in international facilities. The company
anchoring the most global end of the continuum in my research operated in 170
countries and was reshaping its organizational model to be “globally integrated”
rather than “multinational.”
2. Anthony J. Mayo and Nitin Nohria, In Their Time: The Greatest Business Lead-
ers of the Twentieth Century (Boston: Harvard Business School Press, 2005).
3. Thomas Friedman, The World Is Flat: A Brief History of the Twentieth Century
(New York: Farrar, Straus, and Giroux, 2005).
4. Walter B. Wriston, The Twilight of Sovereignty: How the Information Revolution
Is Reshaping Our World (New York: Scribner, 19
92
).
5. Kenichi Ohmae, The Borderless World: Power and Strategy in an Interlinked
World, rev. ed. (New York: Collins, 1999). See also the classic book by Christopher
Bartlett and Sumantra Ghoshal, Managing Across Borders: The Transnational Solution,
paperback ed. (Boston: Harvard Business School Press, 2002).
40
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6. Rosabeth Moss Kanter, World Class: Thriving Locally in the Global Economy
(New York: Simon and Schuster, 1995).
7. Ranjay Gulati, Managing Network Resources: Alliances, Affi liations, and Other
Relational Assets (New York: Oxford University Press, 2007).
8. Rosabeth Moss Kanter, Confi dence: How Winning Streaks and Losing Streaks
Begin and End (New York: Crown, 2004), chapter 11.
9. Joel Podolny, Rakesh Khurana, and Marya Lisl Hill-Popper, “Revisiting the
Meaning of Leadership,” Research in Organizational Behavior 26 (2004): 1–36.
10. Rosabeth Moss Kanter, Commitment and Community (Cambridge MA:
Harvard University Press, 1972).
11. Rosabeth Moss Kanter, Supercorp: How Vanguard Companies Create Innova-
tion, Profi ts, Growth and Social Good (New York: Crown, 2009).
12. Rakesh Khurana, Searching for a Corporate Savior (Princeton, NJ: Princeton
University Press, 2002).
13. Rosabeth Moss Kanter, The Change Masters (New York: Simon and Schuster,
1983).
14. Ibid.
15. Rosabeth Moss Kanter, “Creating Common Ground: Propositions About
Effective Intergroup Leadership,” in Intergroup Leadership, ed. T.L. Pittinsky (Boston:
Harvard Business School Press, 2008).
16. Rosabeth Moss Kanter, “How the Top Is Different,” in Life in Organizations,
eds. R.M. Kanter and B.A. Stein (New York: Basic Books, 1979).
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83
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Fo U 6. www.hbrreprints.org
Regional Strategies for by Pankaj Ghemawat
Included with this full-text
Harvard Business Review
article:
The Idea in Brief—the core idea 1 Article Summary
2
Regional Strategies for Global Leadership
A list of related materials, with annotations to guide further 13 Further Reading
It’s often a mistake to set out Reprint R0512F
Fo U Regional Strategies for Global Leadership page 1
The Idea in Brief The Idea in Practice
C
O Y IG T 2 7
H
A V R B S E S C O L U LI H G O P R T N LL IG T R S R E . Many companies competing in foreign How to craft a winning regional strategy? By creatively blending regional strategies, Ghemawat identifies five regional strategies for serving foreign markets:
Strategy How to Example Pros and Cons
Home Locate R&D and Spanish fashion company Zara designs Lets you get time-sensitive Portfolio Establish op- Toyota applied its renowned produc- You accelerate growth in Hub Build regional Toyota began producing a limited You add value at the Platform Reduce the Toyota has reduced the number of You achieve greater econo- Mandate Give certain Toyota’s innovative International You achieve economies Fo U Regional Strategies for by Pankaj Ghemawat harvard business review • december 2005 page 2
C 5
H
A It’s often a mistake to set out to create a worldwide strategy. Better Let’s assume that your firm has a significant in- Disappointment with strategies that oper- Jeffrey Immelt, CEO of GE, claims that re- age is about playing 3-d chess—at the global, The leaders of these successful companies In the following article, I’ll describe the vari- Fo U Regional Strategies for Global Leadership harvard business review • december 2005 page 3
them as their markets and businesses have The Reality of Regions
The most common pitch for taking regions se- In fact, a close look at the country-level Country-level numbers also suggest that for- The extent and persistence of regionaliza- 1 These four with NAFTA and the European Union supply- Evidence from companies’ international Zooming in on large companies with rela- Pankaj Ghemawat is the Jaime and Fo U Regional Strategies for Global Leadership harvard business review • december 2005 page 4
Let’s now take a closer look at the menu of The Regional Strategy Menu
Broadly speaking, regional strategies can be The Home Base Strategy. Except for the companies generally start their international For other companies, however, a focus on Trade: Regional or Global?
In many parts of the world, intraregional In 2000, the proportion was more than 50%. general, the numbers indicate that increas- Intraregional Trade as a Percentage of Total Trade
0%
10%
20%
30%
40%
50%
60%
70%
80%
1958 2000
EUROPE ASIA AND OCEANIA
EASTERN EUROPE AND MIDDLE EAST Source: United Nations, International Trade Statistics Yearbooks, 1958 to 2000.
Fo U Regional Strategies for Global Leadership harvard business review • december 2005 page 5
those goods to Western European markets. As Zara illustrates, home base strategies For some companies, the “region” that can ory chip business, the Korean giant Samsung But cases like Samsung are rare. Typically, Industry: Regional or Global?
In many “global” industries, competition is index, which measures the degree to which largest companies. As the chart shows, the Concentration in the Aluminum-Smelting Industry
1975
.3000
.2500
.2000
.1500
.1000
.0500
.0000 WORLD
NORTH AMERICA
H fin hl de Source: Fariborz Ghadar, Center for Global Business Studies, Penn State University.
Fo U Regional Strategies for Global Leadership harvard business review • december 2005 page 6
from Asia.
The Portfolio Strategy.
This strategy in- A good example of a successful portfolio Although the portfolio strategy is conceptu- Companies that adopt a portfolio strategy United States, run by purported “global lead- The Hub Strategy. Companies seeking to Hub strategies often involve transforming a In its purest form, a hub strategy is simply a A regional headquarters can be seen as a The surge of trade in the Fo U Regional Strategies for Global Leadership harvard business review • december 2005 page 7
sons. In 2001, therefore, GE switched from a The impact of the typical regional HQ is lim- The challenge in executing a hub strategy is ing less-sophisticated, lower quality products. spread fixed costs across countries within a re- It’s important to realize that the idea behind Let’s look again at the automobile industry. The Mandate Strategy. This cousin of the A Regional HQ Is Not Enough
Many companies with explicitly global Management Inter- on the functions per- the pri-
mary object of interest is a little like fo- Fo U Regional Strategies for Global Leadership harvard business review • december 2005 page 8
adopt this strategy award certain regions As with platforms, the scope for mandates up in some businesses that afford little room There are of course several risks associated The Toyota Way
This exhibit is an almost exact reproduction of a slide presented to Toyota investors at an informational event in New York City in September Past Hereafter Building a (Built where sold)
Development of bases Global network
Locally model
Global car
PLATFORM
HUB
MANDATE
HOME BASE
PORTFOLIO
Used by permission of Toyota Motor Corporation.
Fo U Regional Strategies for Global Leadership harvard business review • december 2005 page 9
engine and transmission plants excludes the The reader will have noticed that Toyota fig- What is also interesting about Toyota is that The picture that emerges is not one of Toy- the “global network” in Toyota’s slide—in Of course, Toyota’s ability to employ a com- Defining Your Regions
As companies think through the risks and op- The general point is that one can interpret In addition to reconsidering what might con- Fo U Regional Strategies for Global Leadership harvard business review • december 2005 page 10
countries by existing and expected free trade At times, the parts of a region aren’t even Finally, it’s important to remember that the Leading-edge companies are starting to SCORE
COMPANY FOOTPRINT Percentage of sales COMPANY STRATEGY Number of bases of COUNTRY LINKS Percentage of FDI COMPETITIVE CONSIDERATIONS Key competitors’ TOTAL SCORE _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
SCORING: Is a Regional Take a couple of minutes to complete Of course, this kind of questionnaire Fo U Regional Strategies for Global Leadership harvard business review • december 2005 page 11
Facing the Organizational Challenge
Regional strategies, as I’ve noted, can take a For some pointers, consider Royal Philips Starting in the 1930s, Philips evolved into a Given this long and sometimes painful his- account management, branding, joint purchas- The obvious implication is that strategic ini- Philips has approached regional strategy In Europe, where Philips is better estab- Fo U Regional Strategies for Global Leadership harvard business review • december 2005 page 12
point. Even Toyota seems to be focusing sepa- • • •
If your company has a significant interna- In a highly regionalized world, the right re- proach. Other bases of cross-border aggrega- 1. For a systematic way to think about cultural, administra- Reprint R0512F To order, see the next page Fo U Regional Strategies for Global Leadership To Order
For Harvard Business Review reprints and For customized and quantity orders of
Harvard Business Review article reprints, page 13
Further Reading A R T I C L E
The Dubious Logic of Global by Pankaj Ghemawat and Fariborz Ghadar
Harvard Business Review July 2000 Huge, pricey cross-border mergers constitute From this perspective, cross-border mergers Fo U 7. RISING COSTS OF BAD LEADERSHIP By Gerard Seijts Reprint #9B16TE04 RICHARD IVEY SCHOOL OF BUSINESS FOUNDATION September/October 2016 To order copies or request permission to reproduce materials, please contact: c/o Ivey Business School London, Ontario N6G 0N1 Email: cases@ivey.ca Ivey Business Journal a division of For information, please contact: www.iveybusinessjournal.com
Richard Ivey School of Business Foundation prohibits any form of reproduction, storage, Email: ibjonline@ivey.ca Fo U Rising Costs of Bad Leadership
2 Ivey Business Journal September/October 2016
Rising Costs of Bad Leadership By Gerard Seijts Bad leadership is clearly expensive. Fraud resulting from mismanagement at Wells Fargo, for The Wells Fargo fiasco, of course, took place under the watch of CEO John Stumpf, who These numbers are shocking, but not as shocking as the leadership that set the stage for Even some ethical and caring employees appear to have checked their character at the door under It has been less than ten years since banking-sector leadership and governance failures almost It is no secret that good leadership requires commitment to doing the hard work it takes to look r u U Rising Costs of Bad Leadership September/October 2016 Ivey Business Journal 3
dimensions. The importance of assessing character is now widely accepted. An Ivey Business And yet, many organizations still fail to take steps to make sure this final pillar of good Bresch’s lack of empathy as a leader is reminiscent of former British Petroleum CEO Tony No corporation should be ashamed about wanting to make profits. But as Bill George, former When recruiting leaders and directors, organizations have long invested time and money to The good news is that character failures can be avoided. Based on research conducted at Ivey, Fo U Rising Costs of Bad Leadership 4 Ivey Business Journal September/October 2016
The costs associated with bad leadership do not have to continue to escalate. More organizations Fo U 102 8. Learning to Manage Global Innovation Projects
By Keeley Wilson and Yves Doz
Reprint# 9B13TB07 RICHARD IVEY SCHOOL OF BUSINESS FOUNDATION March/April 2013 To order copies or request permission to reproduce materials, please contact: c/o Richard Ivey School of Business London, Ontario N6A 3K7 Email: cases@ivey.uwo.ca
Ivey Business Journal The Richard Ivey School of Business. Ivey Business Journal Toronto, Ontario M4T 2L7
Richard Ivey School of Business Foundation prohibits any form of reproduction, storage is not covered under authorization by any reproduction rights organization
Email: www.iveybusinessjournal.com Phone: (416) 923-9945 Fo U 103 2 Learning to manage global innovation projects By Keeley Wilson and Yves Doz Keeley Wilson is a senior research fellow at INSEAD. Yves Doz is the Solvay Chaired Professor of As the trend toward knowledge dispersion grows and intensifies, the opportunities for co-located ledge
will be paramount to building and maintaining competitive advantage. Readers will learn how to For most of the twentieth century the story of innovation was largely one of co-location – innovation Despite having dispersed innovation networks, many companies remain steadfastly wed to co-located Our research points to the inherent and little-understood differences between co-located and globally Preconditions for global innovation projects Organisational stability is a prerequisite A common mistake companies make when embarking on a global project armed with only co-location Fo U 104 3
Disruptive events under way elsewhere in the organisation can have an adverse impact on the project At the root of a troubled global project at a company we shall refer to as Elecompt lay the fact that the Build a competence in dispersed working Most companies can hone deep competencies in co-located innovation as long as the employees For teams that are new to global projects, building the necessary competence should begin with small, Invest time in defining the innovation and project In a co-located project it’s not essential to define an optimal product or service architecture at the Fo U 105 4
Instead, the product or service architecture in a global project has to be thoroughly defined before The need for capability-based resourcing Far too many companies see global projects as an opportunity to make the most efficient use of While it might seem expedient to use a resource availability approach to get a project launched In co-located development, when all of the knowledge needed for an innovation is in one place and Fo U 106 5
Managing global innovation projects The involvement of senior managers We have alluded to the importance of senior management’s involvement with regard to maintaining The importance of formal senior management involvement can be seen in Essilor’s photochromic lens Strong project management driven from a lead site The intrinsic flexibility of co-located projects enables a very light touch when it comes to project When companies first engage in global projects it’s very common to find that the myth of equal Compare the approaches taken by STI and Elecompt. Even though each site involved in the STI Fo U 107 6
provided oversight and clarity – problems were rapidly identified and dealt with, and the complex At Elecompt, in contrast, each of the sites distributed across the U.S., France and Germany had a high Build plenty of communication into the project In co-located projects, communication comes naturally. A shared context and familiarity make it easy While technology has revolutionised the way we work and communicate, an over-reliance on ICT in To compensate for distance and differences, global projects have to rely on what might seem an With a plethora of ICTs at its fingertips, global telecoms firm Tata Communications recognises the Identify and use multicultural managers Pivotal to communicating complex, tacit knowledge in global projects are bi- or multicultural people Fo U 7
When HP Labs established a new innovation centre in Bangalore, India, multicultural managers Limit subcontractors to reduce the management burden Even in co-located projects, outsourcing work to subcontractors requires additional management time In its development of the Dreamliner, Boeing experienced first hand the problems caused by having ____________________ As the trend toward knowledge dispersion grows and intensifies, the opportunities for co-located Fo U 109 8 G rojects – B o-location E
N
atural in roject oxic side effect w S roject Pre-conditions
Project stability – project self contained, disruptive change om system project vulnerable to organisational disruption or change lim large/im C U iliarity, lack of trust, different cultures, s & per Start w com orking practice, co-operation & com unication E iterative learning oo m
difference lead to delays &
inaction integration clearly R D
resources available at given tim
e ledge & capabilities into the project
Inform
al senior m ent oversight ack of decision m conflicts unresolved as possible to inform A anager in form driving & L eight project m ent ack of structure, processes & ordinate m A strong project m ent team processes & R m T e, distance & isunderstandings & m m W T ith travel budgets for m E plex know N echanism plex know nuance, m value are lost uild cadre of bi-cultural ‘cosm anagers’ to interpret com ledge M A uch additional m ent burden & com L it subcontractors to trusted experts w & ity For use only in the course Global Leadership at Northeastern University taught by Under Guidance from Dr. Sriram Rajagopal from September 17, 2019 to December 31, 2020. 110 NOTICE REGARDING COPYRIGHT Unless otherwise stated, Copyright © Ivey Business School Foundation.
www.iveycases.com
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84
Global Leadership
The Idea in Practice—putting the idea to work
exploration of the article’s ideas and applications
to create a worldwide strategy.
Better results come from
strong regional strategies,
brought together into a global
whole.
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85
P
R
H
©
00
R
A
D
U
IN
S
S
H
O
P
B
S
IN
C
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O
A
IO
. A
R
H
S
E
E
V
D
markets pin their hopes for success on a
single worldwide strategy—only to see
lukewarm results. Why the disappoint-
ment? Despite globalization, regional dis-
tinctions (cultural, political, legal, and eco-
nomic) aren’t disappearing. Global
powerhouses—including GE, Wal-Mart, and
Toyota—capitalize on regional differences,
crafting strategies that complement their
global and individual country tactics.
Ghemawat suggests choosing from a
menu, depending on your circumstances.
For example, use the “home base” strat-
egy—locating your R&D and manufactur-
ing in your country of origin—if the eco-
nomics of concentration outweigh those of
dispersion. Or use the “portfolio” strategy—
establishing operations outside your home
region that report to home base—if you
need to average out economic cycles
across regions. Shift among the five re-
gional strategies—or combine them—as
circumstances evolve.
Toyota surpassed Ford as the world’s
second-largest automaker in 2004.
Implement
base
manufacturing in
your country of
origin.
and makes items near its manufactur-
ing and logistics hub in Spain and
trucks them to Western European
markets.
items to market quickly, but
you risk eventually running
out of room to grow.
erations outside
your home re-
gion that report
to home base.
tion system (its distinct competitive
advantage) to factories it built in the
United States (its most important
overseas market).
foreign regions and average
out economic cycles across
regions, but portfolio strate-
gies take time to implement.
bases that
provide shared
resources and
services to coun-
try operations.
number of locally exclusive models in
its principal foreign plants. Each plant
had its own platform, with products
designed for sale within the region.
regional level by catering
to regional preferences, but
you risk sacrificing cross-
regional economies of scale.
number of basic
product plat-
forms you offer
worldwide.
its vehicle platforms from 11 to 6 by
allowing customization atop common
platforms engineered for adaptability.
mies of scale in design,
procurement, and other
functions, thus delivering
variety more cost-effectively,
but taking platform stan-
dardization too far can back-
fire if regional customization
creates excessive disparity
across regions.
regions man-
dates to supply
particular prod-
ucts or perform
certain roles
for your entire
organization.
Multi-purpose Vehicle (IMV) project
funnels common engines and manual
transmissions for pickup trucks, SUVs,
and minivans from Asian plants to
four assembly hubs there and in Latin
America and Africa. These parts are
then forwarded on to major global
markets except the U.S., where vehicles
are larger.
of specialization as well as
scale, but broad mandates
can’t handle variations in
country, national, or regional
conditions (which is why
IMV excludes the U.S.).
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86
Global Leadership
O
P
Y
R
IG
H
T
©
2
00
R
V
A
R
D
B
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IN
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S
S
S
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P
U
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IN
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C
O
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A
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. A
LL
R
IG
H
T
S
R
E
S
E
R
V
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D
.
results come from strong regional strategies, brought together into a
global whole.
ternational presence. In that case, it probably
has something called a “global strategy,” which
almost certainly represents an extraordinary
investment of time, money, and energy. You
and your colleagues may have adopted it with
great fanfare. But, quite possibly, it has proven
less than satisfactory as a road map to cross-
border competition.
ate at a global level may explain why compa-
nies that do perform well internationally apply
a regionally oriented strategy in addition to—
or even instead of—a global one. Put differ-
ently, global as well as regional companies
need to think through strategy at the regional
level.
gional teams are the key to his company’s glo-
balization initiatives, and he has moved to
graft a network of regional headquarters onto
GE’s otherwise lean product-division structure.
John Menzer, president and CEO of Wal-Mart
International, tells employees that global lever-
regional, and local levels. Toyota may have
gone furthest in exploiting the power of re-
gionalized thinking. As Vice Chairman Fujio
Cho says, “We intend to continue moving for-
ward with globalization…by further enhanc-
ing the localization and independence of our
operations in each region.”
seem to have grasped two important truths
about the global economy. First, geographic
and other distinctions haven’t been submerged
by the rising tide of globalization; in fact, such
distinctions are arguably increasing in impor-
tance. Second, regionally focused strategies are
not just a halfway house between local (coun-
try-focused) and global strategies but a discrete
family of strategies that, used in conjunction
with local and global initiatives, can signifi-
cantly boost a company’s performance.
ous regional strategies successful companies
have employed, showing how they have
switched among the strategies and combined
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87
evolved. I’ll begin, though, by looking more
closely at the economic reasons why regions
are often a critical unit of analysis for cross-
border strategies.
riously is that the emergence of regional blocs
has stalled the process of globalization. Im-
plicit in this view is a tendency to see regional-
ization as an alternative to further cross-bor-
der economic integration.
numbers suggests that increasing cross-border
integration has been accompanied by high or
rising levels of regionalization. In other words,
regions are not an impediment to but an en-
abler of cross-border integration. As the exhibit
“Trade: Regional or Global?” shows, the surge
of trade in the second half of the twentieth
century was driven more by activity within re-
gions than across regions. The numbers also
cast doubt on the idea (held implicitly by advo-
cates of pure global strategies) that economic
vitality is promoted more by cross-regional
trade. It turns out that regions whose internal
trade flows are the lowest relative to trade
flows with other regions—Africa, the Middle
East, and some of the Eastern European transi-
tion economies—are also the poorest eco-
nomic performers.
eign direct investment (FDI) is quite regional-
ized, which is even more surprising than the
regionalization of trade. Data from the United
Nations Conference on Trade and Develop-
ment show that for the two dozen countries
that account for nearly 90% of the world’s out-
ward FDI stock, the median share of intrar-
egional FDI in total FDI was 52% in 2002, the
most recent year for which data are available.
tion in economic activity reflect the continuing
importance not only of geographic proximity
but also of cultural, administrative, and, to
some extent, economic proximity.
factors are interrelated: Countries that are rela-
tively close to one another are also likely to
share commonalities along the other dimen-
sions. What’s more, those similarities have in-
tensified in the past few decades through free
trade agreements, regional trade preferences
and tax treaties, and even currency unification,
ing the two most obvious examples. Ironically,
some differences between countries within a
region can combine with the similarities to ex-
pand the region’s overall economic activity. For
instance, we see U.S. firms in many industries
nearshoring production facilities to Mexico,
thereby arbitraging across economic differ-
ences between the two countries while retain-
ing the advantages of geographic proximity
and administrative and political similarities,
which more distant countries, such as China,
do not enjoy.
sales also points to considerable regionaliza-
tion. According to data analyzed by Susan
Feinberg at Rutgers Business School, among
U.S. companies operating in only one foreign
country, there is a 60% chance that the country
is Canada. Even the largest multinational cor-
porations exhibit a significant regional bias. A
study published by Alan Rugman and Alain
Verbeke in the Journal of International Business
Studies shows that around 88% of the world’s
biggest multinationals derive at least 50% of
their sales—the weighted average is 80%—
from their home regions. Just 2% (a total of
nine companies) derive 20% or more of their
sales from each of the triad of North America,
Europe, and Asia.
tively broad regional footprints—roughly akin
to the top 12% of the previous sample—we find
that even here competitive interactions are
often regionally focused. Take the case of the
aluminum-smelting industry. As we see in the
exhibit “Industry: Regional or Global?” in the
last ten years the industry has experienced
some increase in concentration as measured by
the Herfindahl index (a standard measure of
industry concentration; the higher the index,
the larger the market shares of the largest
firms). But that increase in concentration re-
verses less than one-half of the decline of the
previous 20 years, or about one-tenth of the
decline experienced since 1950. In contrast,
concentration in North America has doubled
in the last ten years after holding more or less
steady for the previous 20 years. Similar pat-
terns appear in a range of other industries: per-
sonal computers, beer, and cement, to name
just three. In other words, regions are often the
level at which global oligopolists try to build
up powerhouse positions.
Josefina Chua Tiampo Professor of Busi-
ness Administration at Harvard Busi-
ness School in Boston. He is the author
of “The Forgotten Strategy” (HBR No-
vember 2003).
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regional strategies from which your company
can choose.
classified into five types, each with distinct
strengths and weaknesses. I have ordered the
strategies according to their relative complex-
ity, starting with the simplest, but that does
not mean companies necessarily progress
through the strategies as they evolve. Whereas
some companies may indeed adopt the strate-
gies in the order in which I present them, oth-
ers may find themselves abandoning more-ad-
vanced strategies in favor of simpler ones—
good business is about striving to maximize
value, not complexity. And capable companies
will often use elements of several strategies si-
multaneously.
very few companies that are virtually born
global, such as Indian software services firms,
expansion by serving nearby foreign markets
from their home base, locating all their R&D
and, usually, manufacturing in their country
of origin. The home base is also where the
bulk of the Fortune Global 500 still focuses.
Even companies that have since moved on to
more complex regional strategies nonetheless
rely on a home base strategy—at the regional
level—for long periods. Thus, for decades, Toy-
ota’s international sales came exclusively from
direct exports. And some companies that
move on eventually return to a home base
strategy: GE did so in home appliances, as did
Bayer in pharmaceuticals.
the home region is a matter of neither default
nor devolution but, instead, the desired long-
term strategy. Take the case of Zara, the Span-
ish fashion company. In a cycle that takes be-
tween two and four weeks, Zara designs and
makes items near its manufacturing and logis-
tics hub in northwestern Spain and trucks
trade increased steadily as a percentage of a
region’s total trade in the second half of the
twentieth century. For example, in 1958 some
35% of trade in Asia and Oceania took place
between countries in that geographic region.
Globally, the proportion of trade within re-
gions rose from about 47% to 55% between
1958 and 2000. The only significant decline
has been in Eastern Europe, but that is ex-
plained by the collapse of communism. In
ing economic integration through interna-
tional trade has been accompanied by in-
creasing rather than decreasing
regionalization.
AMERICAS
FORMER USSR
AFRICA
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This rapid response lets the company produce
what is selling during a fashion season instead
of committing to merchandise before the sea-
son starts. The enhanced customer appeal and
reduced incidence of markdowns have so far
more than offset the extra costs of producing
in Europe instead of Asia.
work well when the economics of concentra-
tion outweigh the economics of dispersion.
Fashion-sensitive items do not travel easily
from the Spanish hub to other regions, be-
cause the costs of expedited air shipments com-
promise the company’s low-price positioning.
More generally, the presence of any factor that
collapses distance within the local region (such
as regional grids in energy) will encourage
companies to favor a single-region, home base
strategy.
be served from the home base is actually the
globe. Operating in the highly globalized mem-
has one of the most balanced worldwide sales
distributions of any major business, but it con-
siders the colocation of most R&D and produc-
tion at one site in South Korea to be a key com-
petitive advantage. Transport costs are so low
relative to product value that geographic con-
centration—which permits rapid interactions
and iteration across R&D and production—
dominates geographic dispersion even at the
global level.
doing business from the home base effectively
limits a company to its local region. As a result,
the biggest threats to companies pursuing a
home base strategy are running out of room to
grow or failing to hedge risk adequately.
Growth within Europe will soon be an issue for
Zara. And risk has already emerged as a major
concern: As of this writing, the sharp decline of
the dollar against the euro has inflated Zara’s
costs of production relative to competitors that
rely more on dollar-denominated imports
playing out at a regional level. The chart
below measures concentration in the
aluminum-smelting industry as a summary
measure of the distribution of market shares
within it. The metric used is the Herfindahl
the industry is fragmented (lots of small to
medium-sized companies splitting most of
the business) or concentrated (a few players
controlling most of the business). The higher
the index, the larger the market shares of the
level of global competition was relatively flat
from 1975 to 2000, while concentration in
North America over the same period in-
creased dramatically.
1980 1985 1995 20001990
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volves setting up or acquiring operations out-
side the home region that report directly to
the home base. It is usually the first strategy
adopted by companies seeking to establish a
presence outside the markets they can serve
from home. The advantages of this approach
include faster growth in nonhome regions, sig-
nificant home positions that generate large
amounts of cash, and the opportunity to aver-
age out economic shocks and cycles across re-
gions.
strategy is provided by Toyota’s initial invest-
ments in the United States, which seemed tied
together by little more than the desire to build
up a manufacturing presence in the company’s
most important overseas market. What pre-
vented this approach from destroying value
was Toyota’s distinct competitive advantage:
the celebrated Toyota Production System
(TPS), which was developed and still works
best at home in Japan but could be applied to
factories in the United States.
ally simple, it takes time to implement, espe-
cially if a company tries to expand organically.
It took Toyota more than a decade to establish
itself in North America—a process that began
with a joint venture with General Motors in
the early 1980s. For an automaker lacking an
advantage like TPS, the organic buildup of a
significant presence in a new region could take
far longer. Of course, companies may build a
regional portfolio more quickly through acqui-
sitions, but even that can take a decade or
more. When Jack Welch began GE’s globaliza-
tion initiative in the second half of the 1980s,
he targeted expansion in Europe, giving a
trusted confidant, Nani Beccalli, wide latitude
for deal making. Thanks to Beccalli’s acquisi-
tions, GE built up a strong presence in Europe,
but the process of assembling the regional
portfolio lasted until the early 2000s.
often struggle to deal with rivals in nonhome
regions. That’s largely because portfolio strate-
gies offer limited scope for letting regional—as
opposed to local or global—considerations in-
fluence what happens on the ground at the
local level. Indeed, this was precisely the expe-
rience of GE, whose European businesses re-
ported to the global headquarters in the
ers”—many of whom were Americans who
had never lived or worked abroad. Meanwhile,
most of GE’s toughest competitors in its nonfi-
nancial businesses were European companies
that knew their increasingly regionalized
home turf and were prepared to compete ag-
gressively there. During a talk at Harvard Busi-
ness School in 2002, Immelt described the re-
sults: “I think we stink in Europe today.”
add value at the regional level frequently
begin by adopting this strategy. Originally ar-
ticulated by McKinsey consultant Kenichi
Ohmae, a hub strategy involves building re-
gional bases, or hubs, that provide a variety of
shared resources and services to local (coun-
try) operations. The logic is that such re-
sources may be hard for any one country to
justify, but economies of scale or other factors
may make them practical from a cross-country
perspective.
foreign operation into a stand-alone unit. In
the early 1990s, for instance, Toyota began pro-
ducing a limited number of locally exclusive
models in its principal foreign plants—previ-
ously a taboo—thereby signaling the com-
pany’s intention to build complete organiza-
tions in each of its regions. These plants thus
started to serve as regionally distinct hubs,
each with its own platform, whose products
were designed for sale within the region.
multiregional version of the home base strat-
egy. For example, if Zara were to add a second
hub in, say, Asia by establishing an operation
in China to serve the entire Asian market, it
would shift from being home based to being a
multiregional hubber. Therefore, some of the
same conditions that favor a home base strat-
egy also favor hubs. It should also be noted
that multiple hubs can be very independent of
one another; the more regions differ in their
requirements, the weaker the rationale for
hubs to share resources and policies.
minimalist version of a hub strategy. After the
European Commission blocked GE’s merger
with Honeywell, GE felt the need to dedicate
more corporate infrastructure and resources to
Europe, partly to attract, develop, and retain
the best European employees and partly to ac-
quire a more European face for political rea-
second half of the
twentieth century was
driven more by activity
within regions than
across regions.
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portfolio to a hub strategy by establishing a re-
gional HQ structure in Europe—complete
with a CEO for GE Europe. The company fol-
lowed up in 2003 by establishing a parallel or-
ganization in Asia.
ited, however, by its focus on support functions
and its weak links to operating activities. For ex-
ample, the regional presidents within Wal-Mart
International perform a communication-and-
monitoring role, but otherwise their influence
on strategy and resource allocation seems to be
mainly personal. In any event, a regional HQ is
seldom a sufficient basis for a regional strategy,
even though it may be a necessary part of one.
(See the sidebar “A Regional HQ Is Not
Enough.”)
achieving the right balance between customi-
zation and standardization. Companies too re-
sponsive to interregional variation risk adding
too much cost or sacrificing too many opportu-
nities to share costs across regions. As a result,
they may find themselves vulnerable to attacks
from companies taking a more standardized
approach. On the other hand, companies that
try to standardize across regional hubs—and in
so doing overestimate the degree of common-
ality from region to region—are vulnerable to
competition from local players. Thus we see
Dell, whose product is relatively standard
across its regional operations, forced to modify
its plans in China to respond to local compa-
nies competing aggressively on cost by produc-
The Platform Strategy. Hubs, as we’ve seen,
gion. Interregional platforms go a step further
by spreading fixed costs across regions. They
tend to be particularly important for back-end
activities that can deliver economies of scale
and scope. Most major automakers, for exam-
ple, are trying to reduce the number of basic
platforms they offer worldwide in order to
achieve greater economies of scale in design,
engineering, administration, procurement,
and operations. It is in this spirit that Toyota
has been reducing the number of its platforms
from 11 to six and has invested in global car
brands such as the Camry and the Corolla.
platforming is not to reduce the amount of
product variety on offer but to deliver variety
more cost-effectively by allowing customiza-
tion atop common platforms explicitly engi-
neered for adaptability. Ideally, therefore, plat-
form strategies are almost invisible to a
company’s customers. Platforming runs into
difficulties when managers take standardiza-
tion too far.
Sir Nick Scheele, outgoing COO of Ford, points
out, “The single biggest barrier to globalization
[in the automobile industry]…is the relatively
cheap cost of motor fuel in the United States.
There is a tremendous disparity between the
United States and…the rest of the world, and
it creates an accompanying disparity in…the
most fundamental of vehicle characteristics:
size and power.” This reality is precisely what
Ford ignored with its Ford 2000 program. De-
scribed by one analyst as the biggest business
merger in history, Ford 2000 sought to com-
bine Ford’s regional operations—principally
North America and Europe—into one global
operation. This attempt to reduce duplication
across the two regions sparked enormous inter-
nal turmoil and largely destroyed Ford’s Euro-
pean organization. Regional product develop-
ment capabilities were sacrificed, and
unappealingly compromised products were
pushed into an unreceptive marketplace. The
result: nearly $3 billion in losses in Europe
through 2000 and a fall in regional market
share from 12% to 9%.
platform strategy focuses on economies of spe-
cialization as well as scale. Companies that
ambitions have reacted to the regional-
ization of the world economy by estab-
lishing a set of regional headquarters.
This kind of organizational response
has, in fact, also been the focus of most
of the management literature on re-
gions. Michael Enright, for example, has
described some interesting patterns in
recent articles in the
national Review
formed by regional management cen-
ters. But to focus on regional HQs or any
other organizational structure as
cusing on the briefcase rather than its
contents. Without a clear sense of how a
regional structure is supposed to add
value, it is impossible to specify what
the structure should try to achieve. A
company with no regional HQs may still
use regions as the building blocks of its
overall strategy, and a company with
many regional HQs may still not have a
clearly articulated regional strategy. In
other words, having regional headquar-
ters doesn’t mean that you actually have
a regional strategy.
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broad mandates to supply particular products
or perform particular roles for the whole orga-
nization. For example, Toyota’s Innovative In-
ternational Multi-purpose Vehicle (IMV)
project funnels common engines and manual
transmissions for pickup trucks, SUVs, and
minivans from Asian plants to four assembly
hubs there and in Latin America and Africa,
and then on to almost all the major markets
around the world except the United States,
where such vehicles are larger. Similarly,
Whirlpool is sourcing most of its small kitchen
appliances from India, and a host of global
companies are in the process of broadening
the mandates of their production operations
in China.
generally increases with the degree of product
standardization around the world, even
though the mandate strategy involves focused
resource deployments at the regional and local
levels. But interregional mandates can be set
for conventional platforms. For instance, glo-
bal firms in consulting, engineering, financial
services, and other service industries often fea-
ture centers of excellence that are recognized
as repositories of particular knowledge and
skills, and are charged with making that
knowledge available to the rest of the firm.
Such centers are often concentrated in a single
location, around an individual or a small group
of people, and therefore have geographic man-
dates that are much broader than their geo-
graphic footprints.
with assigning broad geographic mandates to
particular locations. First, such mandates can
allow local, national, or regional interests to
unduly influence, or even hijack, a firm’s over-
all strategy: More than one professional service
firm can be cited in this context. Second, broad
mandates cannot handle variations in local, na-
tional, or regional conditions, which is why the
near-global mandate for Toyota’s Asian pickup
2004. The only change I have made is to label the slide to highlight how the various elements identified in the Toyota strategy correspond to the
five strategies described in this article. Toyota’s “global network,” which combines all the other approaches, can be considered a sixth strategy.
Domestic
production
+
Exports
foundation for
local production
– consolidated production
– mutual supply
exclusive
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United States. And finally, carrying the degree
of specialization to extremes can create inflexi-
bility. A company that produces everything
based on global mandates would be affected
worldwide by a disruption at a single location.
ures as an illustration in all the foregoing de-
scriptions. Indeed, this is because Toyota pro-
vides perhaps the most compelling and
complete example of how the effective applica-
tion of regional strategies can produce a global
powerhouse. The success is apparent: Toyota
surpassed Ford as the world’s second-largest
automaker in 2004 and is poised to overtake
General Motors in the next two to three years.
The exhibit “The Toyota Way” reproduces a
slide that the company uses to summarize the
evolution of its strategy. It shows both that
Toyota looks at strategy through a regional
lens and that it has, in fact, progressed through
all the strategies I’ve just described.
new modes of value creation at the regional
level have supplemented old ones instead of
replacing them. Although Toyota has moved
beyond a Japanese manufacturing base (the
home base strategy), exports from Japanese
manufacturing facilities to the rest of the
world continue to account for more than one-
quarter of the company’s volume and a signifi-
cantly larger share of its profits. In regions
other than the two in which it has strong posi-
tions—East and Southeast Asia and North
America—Toyota is still following a portfolio
approach. In terms of regional hubs, the pro-
motion of a production and procurement spe-
cialist to succeed Fujio Cho as president signals
an increased commitment to transplanting the
Toyota Production System from Japan to the
newer production hubs at a time when over-
seas production is being ramped up rapidly.
But even as its hubs gain strength, Toyota con-
tinues to reduce the number of its major pro-
duction platforms and pursue additional spe-
cialization through interregional mandates.
The IMV project described earlier plays a criti-
cal role in all three respects.
ota progressing through the various regional
strategies one at a time but of a company try-
ing to cover all the bases. One can even argue
that the application of all five regional strate-
gies itself represents a new form of strategy—
which various regional operations interact
with one another and the corporate center in
multiple ways and at multiple levels.
plex mix of regional strategies to create value is
inseparable from the company’s basic competi-
tive advantage: TPS’s ability to produce high-
quality, reliable cars at low cost. Without this
fundamental advantage, some of Toyota’s coor-
dination attempts would drown in a sea of red
ink.
portunities of various regional strategies, they
also need to clarify what they mean by the
word “region.” I have so far avoided a defini-
tion, although most of my examples imply a
continental perspective. My goal is not to be
elusive but to avoid restricting the strategies to
a particular geographic scale. Particularly
with large countries, the logic of the strategies
can apply to intranational as well as interna-
tional regions. Oil companies, for example,
consider the market for gasoline in the United
States to consist of five distinct regions. Other
large markets where transport costs are rela-
tively high in relation to product value, such
as cement in Brazil or beer in China, can be
similarly broken down.
the regional strategies at different geographic
levels. Assessing the level—global, continen-
tal, subcontinental, national, intranational, or
local—at which scale is most tightly tied to
profitability is often a helpful guide to deter-
mining what constitutes a region. Put differ-
ently, the world economy is made up of many
overlapping geographic layers—from local to
global—and the idea is to focus not on one
layer but on many. Doing so fosters flexibility
by helping companies adapt ideas about re-
gional strategies to different geographic levels
of analysis.
stitute a geographic region, one can imagine
being even more creative and redefining dis-
tance—and regions—according to nongeo-
graphic dimensions: cultural, administrative
and political, and economic. Aggregation
along nongeographic dimensions will some-
times still imply a focus on geographically con-
tiguous regions. Toyota, for instance, groups
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94
areas. At other times, however, such definitions
will yield regions that aren’t geographically
compact. After making its first foreign invest-
ments in Spain, for example, the Mexican ce-
ment company Cemex grew through the rest
of the 1990s by aggregating along the eco-
nomic dimension—that is, by expanding into
markets that were emerging, like its Mexican
home base. This strategy created the so-called
ring of gray gold: developing markets that
mostly fell in a band circling the globe just
north of the equator, forming a geographically
contiguous but dispersed region.
contiguous. Spain, for example, can be thought
of as “closer” to Latin America than to Europe
because of long-standing colony-colonizer
links. Between 1997 and 2001, 44% of a surge in
FDI from Spain was directed at Latin Amer-
ica—about ten times Latin America’s share of
world FDI. Europe’s much larger regional
economy was pushed into second place as a
destination for Spanish capital.
definition of “region” often changes in re-
sponse to market conditions and, indeed, to a
company’s own strategic decisions. By serving
the U.S. market from Japan, Toyota in its early
days implicitly considered that market to be on
the periphery of its own region. The North
American West Coast was easy to access by sea,
the United States was open to helping the Jap-
anese economy get off the ground, and the
company’s business there was dwarfed by its
domestic business. But as Toyota’s U.S. sales
grew, political pressures increased the political
and administrative distance between the two
countries, and it became apparent that Toyota
needed to look at the United States as part of
its own self-contained region.
grapple with these definitional issues. For ex-
ample, firms in sectors as diverse as construc-
tion materials, forest products, telecommuni-
cations equipment, and pharmaceuticals have
invested significantly in modern mapping tech-
nology, using such innovations as enhanced
clustering techniques, better measures for ana-
lyzing networks, and expanded data on bilat-
eral, multilateral, and unilateral country at-
tributes to visualize new definitions of regions.
At the very least, this sort of mapping sparks
creativity.
Number of countries with
significant operations
a. 1–5
b. 6–15
c. >15 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
from the home region
a. > 80%
b. 50%– 80%
c. < 50% _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Objective for interregional
dispersion
a. Decrease
b. Maintain
c. Increase _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
aggregation (or grouping)
to be pursued
a. 1
b. 2
c. > 2 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Percentage of trade
that is intraregional
a. < 50%
b. 50 %–70%
c. > 70% _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
that is intraregional
a. < 40%
b. 40%– 60%
c. > 60% _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Differences in profitability
across regions
a. Small
b. Short-term
c. Long-term _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
strategies
a. Deregionalizing
b. Unchanged
c. Regionalizing _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
-1 for each (a) response
0 for each (b) response
1 for each (c) response
Strategy Right for
Your Company?
this short questionnaire. First, circle
one option for each of the following
eight categories. Then complete the
scoring. Give yourself -1 for each “a” re-
sponse, 0 for each “b” response, and 1
for each “c” response, and then add up
the numbers. A positive score may in-
dicate a significant need for strategy at
the regional level. The higher the
score, the greater is your need.
is no substitute for analyzing your com-
pany’s situation—and regionalization
options—in detail. But if the results
prompt you to look at your regional
strategy more carefully, the exercise will
have been useful.
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95
long time to implement. One deep-seated rea-
son for this is that an organization’s existing
structures may be out of alignment with—or
even inimical to—a superimposed regional
strategy. The question then becomes how best
to mesh such strategies with a firm’s existing
structures, especially when the established or-
ganizational players command most of the
power.
Electronics, which has been a border-crossing
enterprise for virtually all of its 114-year his-
tory. Philips’s saga not only points to align-
ment challenges but also reminds us that re-
gionalization is rarely a triumphal march from
the home base to interregional platforms or
mandates.
federal system of largely autonomous national
organizations presided over by a cadre of 1,500
elite expatriate managers who championed
the country-oriented approach. But as compe-
tition emerged in the 1960s and 1970s from
Japanese companies that were more central-
ized and had fewer, larger plants, this highly lo-
calized structure became expensive to main-
tain. Philips responded by installing a matrix
organization—with countries and product divi-
sions as its two legs—and spent roughly two
decades trying, without much success, to rebal-
ance the matrix away from the countries and
toward the product divisions. Finally, in 1997,
CEO Cor Boonstra abolished the geographic di-
mension of the matrix as a way of forcing the
organization to align itself around global prod-
uct divisions.
tory, it would be unrealistic for today’s champi-
ons of regional strategies within Philips to ex-
pect to overthrow the product division
structure. Would-be regionalists have to work
within it. Jan Oosterveld, who served as CEO of
Asia Pacific from 2003 to 2004—a position cre-
ated after Philips announced the combination
of two Asia Pacific subregions into one—saw
that his first task was to facilitate the sharing of
resources and knowledge across product divi-
sions within the region. Ultimately, however,
he aimed to help develop an Asia Pacific strat-
egy for the company. So although the new
Asian regional structure has initially focused
on coordinating governmental relations, key
ing, and IT, HR, and other support functions,
Oosterveld and others can imagine a day when
much more power might be vested in regional
headquarters in, say, New York, Shanghai, and
Amsterdam than at the corporate level. They
also recognize, however, that achieving that
kind of regional strategy could take many
years.
tiatives can be pursued at the regional level
only if some decision rights are reallocated—
whether from the local or global levels, or from
the other repositories of power within the or-
ganization (in Philips’s case, product divisions).
And just as obviously, no one likes to give up
power. Leadership from the top, aimed at pro-
moting a “one-company” mentality, is often
the only way forward. One of Oosterveld’s con-
ditions for taking the job at Philips was that
the board of directors hold regional conclaves
twice a year to show its commitment to the re-
gional initiative. Such conclaves might be
mainly symbolic, but symbolism can go a long
way.
flexibly, putting in place a wide variety of ar-
rangements that take into account not only the
company’s existing structure but also competi-
tive realities, region by region. In North Amer-
ica, for example, Philips’s principal objective
continues to be to rebuild its positions and
achieve satisfactory levels of performance in
the all-important U.S. market. Its activities
there are organized entirely around the global
product divisions, which, because of the size of
the market and Philips’s stake in it, are
thought to be capable of achieving the requi-
site geographic focus.
lished, the company has rethought the role
and status of the large operations in the home
country of the Netherlands within the broader
regional structure. In April 2002, when Philips
announced plans to set up a regional super-
structure in Asia Pacific, it also folded the
Netherlands into an expanded region compris-
ing Europe, the Middle East, and Africa. The
point is that irregular or asymmetric structures
(in which some regions seem to be much
larger than others) are often preferable to an
aesthetically pleasing (and in some respects
simpler) symmetry of the sort implicitly
evoked by much of the discussion up to this
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96
rately on China while its other markets are
grouped into multicountry regions.
tional presence, it already has a regional strat-
egy—even if that strategy has been arrived at
by default. But given the variety of regional
strategies, and the fact that no one approach is
best or most evolved, there is no substitute for
figuring out which ways of coordinating
within or across regions make sense for your
company. As we have seen, however, embrac-
ing regional strategies calls for flexibility, cre-
ativity, and hard-nosed analysis of the chang-
ing business context—all of which take time
and effort.
gional strategy (or strategies) can create more
value than purely global or purely local ones
can. But even so, the regional approaches I
have been exploring may not make sense for
your company. In that case, here is what you
can take away from this article: Regions repre-
sent just one way of aggregating across borders
to achieve greater efficiencies than would be
achievable with a country-by-country ap-
tion that companies have implemented in-
clude products (the global product divisions at
Philips), channels (Cisco, which uses channels
and partners as its primary basis), customer
types or global accounts (many IT services
firms), functions (most major oil companies),
and technologies (ABB recently, before and
after trying some of the bases that are listed
above and others that aren’t). Each of these
bases of aggregation offers, as regions do, mul-
tiple possibilities for crafting strategies inter-
mediate to the local and global levels by group-
ing things. In a world that is neither truly local
nor truly global, such strategies can deliver a
powerful competitive advantage.
tive, geographic, and economic distance, see the CAGE
framework described in my article “Distance Still Matters:
The Hard Reality of Global Expansion” (HBR September
2001).
or call 800-988-0886 or 617-783-7500
or go to www.hbrreprints.org
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subscriptions, call 800-988-0886 or
617-783-7500. Go to www.hbrreprints.org
call 617-783-7626, or e-mai
customizations@hbsp.harvard.edu
Megamergers
Product no. R00405
another strategy that, like purely global and
country tactics, often don’t deliver the results
companies hope for. That’s because execu-
tives hold mistaken assumptions about such
mergers. They believe that industries will inev-
itably become more concentrated as markets
become more globalized. Put another way,
the spoils of the market will supposedly go to
a select few in each industry. If they’re going
to be among the winners, firms believe they
will have to shore up economies of scale in
manufacturing, branding, and research and
development. That’s how they hope to scare
off potential competitors and sew up new
markets.
are a do-or-die proposition: If you want to
thrive, you must be one of the world’s biggest
players. Yet in reality, globalizing industries
have been marked by steady decreases in con-
centration since World War II. For this reason,
companies need alternative, more profitable
strategies to pursuing the big M&A deal. In-
stead of relentless expansion through mega-
mergers, consider other options. The authors’
recommendations? Buy up cast-off assets
from merging rivals. Focus more on regional
or domestic growth rather than global expan-
sion. Take advantage of merging rivals’ weak-
ened market position during integration by
launching an aggressive marketing campaign.
And build alliances with other companies
rather than buying them up.
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COPYRIGHT © 2016
Ivey Publishing, Richard Ivey School of Business Foundation
Western University
1255 Western Road
Tel: (519) 661-3208 Fax: (519) 661-3882
is published by Richard Ivey School of Business Foundation
Ivey Business School
Ivey Business Journal
posting or transmission of this material without its written permission. Reproduction of
this material is not covered under authorization by any reproduction rights organization.
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99
example, has already cost the bank about US$300 million in fines and pre-settlement
investigative costs while wiping out something like US$6 billion in shareholder value. Ex-
employees, meanwhile, are seeking at least US$2.6 billion in a class-action lawsuit related to the
Wells Fargo corporate culture that rewarded employees who created multiple accounts for
customers without permission.
ironically insists on the bank’s website that integrity “is not a commodity. It’s the most rare and
precious of personal attributes. It is the core of a person’s — and a company’s — reputation.” So
let’s not forget the extra millions lost from the hit to Wells Fargo’s brand value, which was listed
at US$30 billion before suffering from criminal behaviour that enriched the stock holdings of
executives, but decimated public trust, while generating minimal revenue for the company.
employee misbehavior and then failed to do anything about it for years. As a result, U.S. Senator
Elizabeth Warren was justified when scolding Stumpf during government hearings on the bank’s
account-opening practices, noting “you squeezed your employees to the breaking point so they
would cheat customers and you could drive up the value of your stock and put hundreds of
millions of dollars in your own pocket. And when it all blew up, you kept your job, you kept
your multimillion-dollar bonuses and you went on television to blame thousands of $12-an-hour
employees who were just trying to meet cross-sell quotas that made you rich. This is about
accountability. You should resign.”
Stumpf’s leadership (or lack thereof). As one bank worker told a Missouri court during a 2015
foreclosure case: “I’m not here as a human being. I’m here as a representative of Wells Fargo.”
toppled the global financial system, but the expensive lessons embedded in the 2008 financial
crisis already appear forgotten as high-profile cases of appalling corporate behaviour continue to
undermine capitalism. And the costs are unsustainable. As pointed out by former BMO Capital
Markets head Eric Tripp, in a call to action aimed at the financial sector, the combined cost of
character flaws in the banking industry alone over the last decade is estimated to be about US$8
trillion if you include lost economic growth. That’s more than US$1,000 for every person on the
planet.
out for all of an organization’s stakeholders, along with the intellect and competencies required
to compete in today’s disruptive and uncertain times. But as research into the global financial
crisis has made clear, good leadership further requires a balance of identifiable character Fo
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100
School survey of directors and senior executives from for-profit and not-for-profit organizations,
for example, found 86 per cent of respondents agreeing, or strongly agreeing, that boards should
assess and evaluate CEO character. Furthermore, 60 per cent of survey participants agreed, or
strongly agreed, that character strengths and deficits can be assessed through good interviewing,
not to mention extensive and intensive reference-checking.
leadership is in place when making executive appointments. We unfortunately see examples of
this paradox in the newspapers almost every day. Take the case of pharmaceutical firm Mylan,
where the U.S. price of a two-pack EpiPen kit has jumped from about US$100 to more than
US$600 since the company acquired rights to the life-saving product in 2007. Instead of being
led by a CEO who would have recognized that price gouging allergy-prone families was not
good business, the company has Heather Bresch at the helm. And when addressing the legitimate
concerns of her company’s critics, she further enraged customers (while showing a total lack of
awareness of the corporate social responsibility movement at the same time) by bluntly stating,
“I am running a business to make money.”
Hayward during the catastrophic Gulf of Mexico oil spill, when he infamously complained about
how his enjoyment of life was being disrupted. “There’s no one who wants this thing over more
than I do, I’d like my life back,” he said. Public outrage later forced an apology to the 11 families
who had lost someone in the accident.
head of Medtronic, pointed out in a blog on Bresch’s testimony, when George Merck ran a
pharmaceutical company, he had the character to lead his business with the following
understanding: “Medicine is for the people. It is not for the profits. The profits follow.” At
Mylan, however, pricing policy was tainted by greed. And shareholders are paying the price.
“We continue to believe the EpiPen situation is far from over with Mylan and represents a risk to
the shares,” Wall Street market watcher David Maris recently warned investors. And hey, he
clearly knows about the costs associated with reputational damage. After all, Maris is a Wells
Fargo analyst.
ensure they are managed and governed by people with appropriate levels of experience and
competencies. But all that time and money can be wasted when leadership character isn’t also
given the attention it deserves because costly failures in decision making can often be traced
back to character-based issues such as closed-mindedness, impatience, and lack of
accountability, empathy, humility, and courage.
proactive companies are now deploying tools specifically designed to assess leader character
when recruiting, onboarding, promoting, and developing people.
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101
simply need to recognize the importance of assessing and developing leadership character. The
issue of leadership character can be ignored, but the price of doing so can’t be when paying for
this neglect.
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COPYRIGHT © 2013
Ivey Publishing, Richard Ivey School of Business Foundation
The University of Western Ontario
Tel: (519) 661-3208
Fax: (519) 661-3882
is published by Richard Ivey School of Business Foundation a division of
For subscription information, please contact:
P.O. Box 10, Station Q
or transmittal of this material without its written permission. Reproduction of this material
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Technological Innovation at INSEAD. They are co-authors of Managing Global Innovation (Harvard
Business Review Press, 2012). This article is based on the book.
innovation will recede further in favour of a globally integrated approach. Being able to set up and
manage global projects to replicate the benefits of co-location while leveraging dispersed know
accomplish this goal.
took place in one country, albeit at different locations, but where people shared the same context and
culture. But this can no longer remain the case, as the knowledge and skills needed for innovation are
becoming increasingly scattered around the world. Today, lead customers, technologies and
capabilities are just as likely to be found in emerging markets as they are in Japan, the United States or
Western Europe. To remain competitive, companies need to learn how to leverage this dispersed
knowledge. In other words, innovation has to become a globally integrated activity.
innovation through transnational, multi-domestic or home base, local adaptation models. Why is this
the case, when global projects can deliver significant value and competitive advantage, as well as
reduce time to market and cut development costs through parallel development across multiple sites?
These global projects are a lever for integration, attracting and deploying knowledge from around the
world, and promoting cross-site learning and knowledge sharing.
dispersed projects as being the root cause of the reluctance to embrace the opportunities of global
innovation. Far too many companies bring co-location mindsets, processes, capabilities and structures
to global projects without realising that in a co-located environment, much of what happens in terms
of communication, co-ordination and collaboration happens naturally, due to proximity, shared norms,
culture and experience. As we will outline below, planning and managing global projects means that
the modes of communication, co-ordination and collaboration all need to be approached differently in
order to account for the challenges of distance and difference, and to reap the benefits of global
innovation.
project experience is to underestimate the systemic nature of innovation projects and their resulting
vulnerability to organizational change.
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in two different ways: First, global projects need close and continual senior management attention. Yet
during periods of major change such as restructuring, reorganisation or integrating new acquisitions,
these managers are likely to be pre-occupied with managing large change programs. Second, when an
organisation is in a state of flux, morale is often dented and rumours of job cuts can lead to a lack of
focus in project teams or even worse, the loss of a critical mass of team members who “jump before
they are pushed.” It’s vital therefore, that global projects are started and completed in a climate of
organisational stability.
project was launched when new acquisitions were being integrated and a massive reorganisation was
in progress. Although the project was of strategic importance, management’s focus was
understandably elsewhere. This meant that critical decisions for the project were not made and that
mounting problems such as turf battles between sites, product architecture and subcontractors went
unnoticed. Fearing the worst outcome, large numbers of staff at one site resigned, leaving a serious
gap in the project team, which in turn caused further problems and delays as replacement staff had to
be found and brought up to speed.
involved share the same culture and are located in the same country. Trying to transfer these
competencies to a global project environment isn’t feasible, as innovation, personnel and functions
that are dispersed throw up unique challenges that require new and different practices and approaches.
Dispersed project teams need to learn how to collaborate and communicate over time zones and
cultural distances, and build trust in the commitment and capabilities of teams at distant sites.
non-critical collaborations among just two or three geographically dispersed sites. When the Schneider
Toshiba Inverter (STI) joint venture was first established, engineers in both companies had little
respect for each other and were reluctant to work together. To break down these barriers, STI’s
management organised a series of small collaborative projects between the sites in France and Japan
with the hope of establishing joint working practices and channels of communication, and to build
mutual respect and trust. Even after the first project, each team recognised the value the others
brought. By the time STI launched a major, complex global project, a critical mass of the project
teams involved had developed a strong competence in dispersed work.
outset, or even a fully detailed work plan. This is so because during development, interactions between
the project team members will lead to the adaptation and improvement of the innovation and
adjustments to the work. However, it is unfeasible and impractical to apply this emergent architecture
model to global projects, where there is little tolerance for iterative learning.
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development is under way. The architecture also has to be made as modular as possible.
Interdependencies and interfaces between modules have to be defined and the project goals, process
flows, timelines, interfaces and knowledge requirements need to be thoroughly understood by all
project teams. When Essilor and its alliance partners launched a project to develop a new range of
photochromic lenses, despite having only two years to develop and launch the new products, the
project team invested nine months of intense hard work in defining the product architecture and
interfaces. The science behind the new product was very complex as were the interfaces between
specialist contributions, which came from more than 20 sites around the world. For example, the
photochromic coating dyes developed in one location had to be embedded in the surface of the lens
(developed elsewhere) without any adverse reactions from the lens core monomer (the chemicals
which produce the basic lens). Meticulous planning by experts at each site contributed significantly to
a successful project outcome.
available human resources across their innovation network at any given time. Yet, staffing global
projects on the basis of current ‘resource availability’ undermines a fundamental tenet of global
innovation – to build competitive advantage by combining the best knowledge and complementary
competencies from around the world. Teams therefore need to be selected for the capabilities they
bring to the project.
quickly, the consequences can be divisive and derail a project. Looking again at the Elecompt project,
managers chose to follow the resource-availability model of staffing. This resulted in a team in the
U.S. developing a technical module requiring knowledge and competence in areas in which they had
no experience. The U.S. team struggled with the development of the module as well as members’ lack
of knowledge, which made communication with other teams difficult. It also made it impossible to
manage a distant subcontractor who was providing specialist input. The net result was delays, a huge
cost overrun and a loss of morale. Ultimately, when a team with the requisite capabilities became
available, it took over the work.
people work closely together in a common space, continual informal oversight means that adjustment
to interfaces and interdependencies takes place almost naturally. This isn’t the case in a global project,
with its work packages dispersed across locations. To emulate the near seamless integration of co-
located projects and capability resourcing, global projects require a small degree of competency
overlap between sites. This provides the kernel of critical knowledge that needs to be shared to avoid
modules being developed in isolation. Siemens, for example, achieves this by forming virtual cross-
geography, cross-disciplinary teams of experts from each of the modules in a project. Weekly
meetings between each core module-development team and the virtual oversight group allow potential
integration problems to be identified and nipped in the bud.
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organisational stability. But they also have a critical role to play when the project is under way. In co-
located projects, senior managers’ role becomes more informal once they have sanctioned an
innovation project and its budget. Expert practitioners take over running the project and co-location
enables senior managers to be consulted on an ad hoc basis. But in global projects, the underlying
knowledge base is fragmented and each team involved brings very different opinions, experience and
solutions. Senior managers have to manage this diversity and play a more hands-on role by not only
championing the project but also by keeping it together. They are ultimately responsible for the project
– ensuring that it’s on track and having the deciding voice in decision-making.
project. To keep the project on track, an innovative but potentially risky shortcut to speed up the
production process was mooted. A member of Essilor’s executive board had been assigned to oversee
the project and was able to assess the technical options against the strategic demands the project
addressed. He made the decision to press ahead with the shortcut in order to meet the launch date. But
he made it clear that the risk this entailed belonged to the project, and ultimately, the executive
committee, not the managers at the production facilities involved. This quick decision meant that there
was no disruption in the workflow. Having come from the highest management echelons, the project
teams were comfortable with the solution.
management, as co-located teams tend to adjust informally. The same does not hold for global
innovation projects, where multiple locations require robust project management structures, tools and
processes to juggle all of the pieces of a complex puzzle. Project managers have to recognise when
particular teams aren’t coping and find solutions to support them. The managers also have to ensure
that everyone involved in the project is connected and aware of what is happening.
partners leads to a consensus-management approach. For companies that have multi-domestic or
transnational structures with independent subsidiaries performing local innovations, individual sites
are used to operating with high levels of autonomy. In some companies, certain sites hold a
disproportionate degree of political power. In either case, the equal-partner approach avoids the undue
ruffling of feathers by the imposition of a project lead site. This approach, however, is impractical and
untenable for global innovation.
project was a global leader in its own field, one site that had been heavily involved in driving the pre-
project marketing activities was designated as the lead, responsible for liaising with senior
management, co-ordinating the project management team and delivering the project. The lead site
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project was delivered on time and on budget.
degree of autonomy and exercised equal weight in decision-making. Every decision and aspect of co-
operation had to be negotiated. As tensions rose and personality clashes came to the fore, these
negotiations often ended in stalemates, with teams defending their own contributions without thinking
about what was best for the overall project. With the project running over budget, extremely late and
on the brink of collapse, an external project management-consulting group was brought in to act as a
de facto lead – introducing processes, systems, a global work schedule and a steering committee
responsible for conflict resolution.
to discuss complex ideas and solve problems through impromptu conversations. The challenge in
global projects is to create the structures and processes necessary to replicate this ease and richness of
communication.
global innovation projects is counterproductive. Although they have a role to play, virtual engineering
environments, video-conferencing, web meetings, forums, social media and other ICTs can lull people
into a false sense of believing that the sender shares the same context as himself or herself. Nuance is
lost and misinterpretation is common.
onerous level and intensity of communication channels. In addition to an array of ICTs, generous
travel budgets are needed for the face-to-face site visits, secondments and project team meetings. In
addition, a dense web of cross-site project reporting lines will give individuals a sense of belonging to
the global activity rather than their local site and this will keep sites plugged in to the details of what is
happening at other sites.
importance of a more comprehensive approach to communication. As a highly dispersed organisation,
its culture is reinforced by cross-location accountability and reporting, while travel for face-to-face
meetings is an everyday part of life for project teams and managers alike.
who act as bridges for interpreting and transferring complex knowledge between different contexts,
such as countries, cultures and business groups, and preventing misunderstandings from escalating
into conflicts. These people have the ability to see things from different perspectives and are less
likely to fall victim to miscommunication and misinterpretation between locations.
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108
played a key role in driving innovation projects. A Bangalore-based American HP veteran who had
lived and worked in Northeast Asia for many years and had worked with an Indian director of the lab
long-based in California, provided the critical bridges to translate the opportunities unearthed in India
into a context that made sense to HP’s business groups and headquarters. Without these two managers
it is unlikely that much of the new knowledge from India would have been successfully integrated into
global innovations.
and focus. In global projects, the extra burden of managing subcontractors can be highly disruptive. As
a result, it makes sense to keep their numbers as low as possible, select trusted partners who know
your products, development and integration processes, and work with those who are physically and
culturally close to your own network. The role of managing each subcontractor should be given to
someone on the project team who understands the interdependencies between modules in the
innovation. This is essential to maintaining a dialogue and the quick resolution of any problems that
might arise.
too many distant partners. Effective oversight of the 50 partners working on different subsections all
around the world was difficult and integration was beset by problems. This was a far cry from the
highly co-located development of earlier decades when most of the expertise Boeing required was in-
house, with staff working in open-plan hangars and freely sharing knowledge and ideas. Boeing had to
return to this model and co-locate its partners for six months to resolve the many problems the
Dreamliner project encountered. The aircraft was finally delivered almost three years late, suffered
serious teething troubles, and as a result, lost orders to the Airbus A350.
innovation will recede further in favour of a globally integrated approach. Being able to effectively set
up and manage global projects to both replicate the benefits of co-location while leveraging dispersed
knowledge will be paramount to building and maintaining competitive advantage.
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