Global Operating Models ina Multi-Polar World

Stéphane J.G. Girod, Joshua B. Bellin and Robert J. Thomas

May 2009

Research Report

Many experts believe that thesechallengers represent a new breed ofcompetitor characterized by radicallynew business models. Ming Zeng andPeter Williamson, for example, explainhow many Chinese companies are nowthriving on the difficult-to-imitate“cost innovation” strategy—the abilityto offer customers high levels of varietyor specialization, or high-tech productsthemselves at low cost.3 Few triadcompetitors seem to be able to masterthe skills needed to implement thisstrategy, which requires differentoperating models or organizationalconfigurations than are usually foundin developed-economy multinationals.

How have companies like AméricaMóvil, China Mobile, Lukoil andReliance Industries — companies thatwe will profile in future researchnotes — organized to sustain theirnow impressive competitive positions?What is special or new about theseglobal operating models, if anything?Are they really more innovative thantheir triad-based competitors’ models?If so, what are the implications formultinationals based in the developedworld? If not, on the other hand, howcan they be improved, and what arethe implications for the next generationof developing-world businesses?

These questions are all particularlypertinent for companies in bothdeveloping and developed regions thatare seeking to achieve or maintainhigh performance. The right globaloperating model can give companiesa distinctive capability that helps itoutperform competitors over timeand across economic disruptions andchanges in leadership.4

The literature on emerging-marketmultinationals is scarce and contra-dictory. Some researchers contend thatthe operating models of emerging-market champions are significantlydistinct or even superior.5 Some arguethat emerging-market champions arestill followers lacking organizationalstrengths other than those relatedto low-cost manufacturing.6 Yet forothers, the operating models areconverging toward Western practicesunder the influence of businessschools, global consultants and mergerand acquisitions.7 Given this lack ofagreement, substantive differences inmodels may emerge, quite apart fromthose simply created by cultural andinstitutional differences. Besides,relevant studies do not relate theirfindings to a set of prescriptiveconfigurations in which the synergiesbetween the operating elements areclearly explained.

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The Accenture Institute for HighPerformance Business has begun aresearch project to explore the globaloperating models of emerging-marketleaders in the wireless telecom andenergy industries. Understanding howthe models in these companies comparewith those of their US-, EU- andJapan-based competitors should helpall companies compete in the nextphase of globalization — one markedby a competitive landscape with manycenters of economic power.

In this research note, the first in aseries, we lay out the questions thatwill be taking up over the course ofthe project and set out a course ofresearch. We define the concept ofglobal operating model, present ashort overview of the recent literatureabout emerging-market companies’global operating models, discuss someof our methodological choices and detailthe contributions we expect to make.

What is a globaloperating model?

At the core of business today are twohigh-level challenges: strategy andexecution. Encapsulated within anystrategy is a business model or valueproposition which, in its simplestform, answers the question, How dowe make money? And situated withinthe sphere of execution is an operatingmodel, which answers, Are we properlyorganized and aligned to execute thatstrategy? To succeed in the multi-polarworld, a company’s global operatingmodel must be as robust as itsbusiness model is sound.

In our definition, two aspects charac-terize an operating model. The firstaspect is the five organizational

Emerging economies are increasingly shaping whatwe call a multi-polar world.1 A decade ago, only20 companies from those economies appeared onthe list of Fortune’s Global 500; today that numberis 70. And those companies have achieved in 20years what some of their “triad-based competitors”(those in Japan, the European Union and NorthAmerica) took a century to accomplish.2

Operating Model Characteristics

Strategy and Value Proposition

Superior Business Results

Culture

Alignment

Operating Model – Components

ExternalEnvironment

Execution

dimensions—leadership, people, organi-zational architecture and infrastructure,processes and technology, and metricsof business success—that interactwith company culture.8 (See “OperatingModel Characteristics.”) The secondaspect, on which the success of anoperating model depends, is thecapability to align these five elementsand integrate them with one anotherso that they are correctly configuredto fit the internal culture, the externalenvironment and, of course, thecompany strategy.9

Operating in a multi-polar world meansthat high-performance businessesneed to anticipate intense competitionfrom new players from all around theworld and to support their businessmodels in both triad and emergingmarkets. This task entails managingthe different levels of complexityfound in local, regional and globaloperations. And this is the crux of a

global operating model: when properlyconfigured, the five organizationaldimensions just discussed allow multi-national companies to manage thatcomplexity with agility and flexibility.

Uncertainty aboutemerging-market leaders’global operating models

Here we summarize our preliminaryreview of the relevant literature usingthe figure presented nearby. As it iseasy to observe, little is explained abouthow emerging-market leaders configuretheir global operating model to supporttheir rapid internationalization.

People and leadership. Some studiesshow that emerging-market championsvalue multicultural and local leadershipmore than developed-market multina-tionals, which tend to rely more onexpatriates.10 Yet, this point isdisputed as some studies also show

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that, for example, in regionally orreligiously fragmented China and India,corporations struggle to be inclusiveand culturally diverse.11

People and talent. Academics aredivided about whether emerging chal-lengers and triad incumbents havecomparable internal training programsand corporate universities; innovativerecruitment methods; job-rotationpractices; and internal innovationcompetitions.

Organizational architecture andleadership. It’s not clear from theliterature whether emerging-marketchampions are more entrepreneurialor more bureaucratic than theircompetitors. Many studies report thatChinese state-owned companies arevery bureaucratic and their seniormanagers motivated more by politicsthan performance.12

Organization Architectureand Infrasturcture

People

Business SuccessMetrics

Leadership

Processes andTechnology

Processes. Emerging-market leadersmay have a superior ability to satisfybottom-of-the-pyramid customers intheir own or other emerging economies.13

These companies may have an advantagebecause they have the right learningskills and knowledge managementprocesses in place to serve such markets.

Yet it is not clear whether theseprocesses are so effective that theycould result in a worldwide operating-model advantage. Emerging-marketmultinationals may still lack the skillsto develop a sophisticated marketingstrategy in which demand is highlycomplex; global branding, for example,might prove difficult. Furthermore,none of the studies explain whatmakes such learning possible, or howit is organized and flows withinthese organizations.

The emerging-market literature alsohighlights two important operatingmodel variations that get little atten-tion in the organization literatureon models that has been developedthrough triad-based research lenses.

Hybrid global operating models

Chinese and Indian companies, notably,may develop “hybrid” operating modelsin which they seek to reconcile localand triad-invented practices. Fang LeeCooke observes, for instance, thatmany leading Chinese companies usea combination of Western, Japaneseand Chinese operating practices,particularly in the areas of humanresources and culture.14 For example,they combine Western performance-based incentives that reward Japanese-

style just-in-time and quality-teamsexcellence but leave a much strongerrole to collective agreement andtrade unions, a necessity in a socialisteconomy. Similarly, Signe Spencerand colleagues note that many IndianCEOs exhibit individualistic, capitalistand socialist leadership styles.15 Forexample, in their decision-makingprocesses, Indian CEOs will valuecompany performance but also andat least equally, the collective good,both social and national. So whatmakes hybrid operating models work?Are these models temporary or hereto stay? How do emerging-marketchampions choose which capabilitiesto import and which to do away with?We will address these and otherquestions in our study.

The role of governance

Some studies indicate that an essentialgovernance feature of many emerging-market leaders both in Asia and inLatin America is the business group(conglomerate), which is oftenfamily-owned. This type of governancestructure may allow emerging-marketcompanies to compensate better forthe lack of venture capitalists, financialinstitutions, business schools, marketresearch firms, and law and accountingfirms than their triad-based competitorsthat often depend on such resourcesto operate successfully.16 But as manyscholars recognize, there are potentialweaknesses with conglomerates. Theycan show less transparency and morecomplacency with less than optimalresults and performance metrics.Furthermore, this structure may ham-per effective internationalization bydispersing resources and distractingleadership. Thus, it may have detrimentalimplications for metrics, leadership andother operating model dimensions.

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While the literature on emerging-marketchampions highlights the variousstrengths and weaknesses of theiroperating models, it does not convinc-ingly and abundantly explain 1) howthese operating models work andsupport multi-polar operations andinternational expansion; 2) how thedifferent elements help or hinder oneanother; 3) how and when an operatingmodel, corporate strategy and businessenvironment combine to create thebest performance outcomes; 4) whichglobal operating-model capabilitiesand configurations are the mostimportant for emerging-marketchampions and which are the mostimportant for triad-based firms; and5) what the characteristics of IT-basedprocesses, metrics and organizationalstructure are. Clearly, more researchis needed. A comparative approachshould help to close those gaps.

Focusing on multi-polar,transnational companies

We plan to develop several case studies,choosing companies that are bothmultinational enterprises and highperformers. We will limit our compar-ative research to two industries—thewireless telecom and energy industries—in order to explore them in-depth andto cover more countries. The case-study design of our research will alsoallow us to examine some of thecultural and institutional differencesthat may explain similarities or differ-ences in global operating models.17

These are important elements to con-trol to properly fix the boundaries ofour recommendations. We selectedthese two industries because they areboth multi-polar and transnational.

The wireless telecom and energyindustries are among the few industrieswith a number of significant playersthat are already widely internationalizedin the triad and emerging markets,directly comparable in terms of size,and not solely concentrated in Europe,the United States, Japan, China andIndia. In these industries, the rulesof the game can be changed by anychampion from anywhere in the world,which requires particular agility.

Managers in these industries must alsoaccommodate local, regional and globalpressures simultaneously — that is, theymust operate among transnationalforces. This type of environment is themost difficult to navigate. It is the onethat may require the most sophisticat-ed global operating models.18

Implications for managers

Our expected contributions aim toserve both triad-based and emerging-market multinationals.

At the corporate level, managers mayneed to understand, anticipate andimplement new practices to modify aglobal operating model. For example,some triad multinationals may considergiving their Chinese subsidiaries a globalmandate.19 This means that theirChinese subsidiary receives the globalresponsibility for the development,manufacturing or distribution of aparticular line of business. Such transfermay entail corporate-wide reconfigu-rations of management processes,leadership approaches, degrees ofcentralization and formalization, andorganizational cultures. For example,a right balance of autonomy and

centralization should be found, whichcould allow leadership in China to befree to make decisions about productmix that would normally requireapproval from the corporate center.

The global operating model may alsoneed to be reconfigured to supportbetter local operations. Many triadcompanies need to confront increasinglypowerful challengers in their domesticmarkets. The opportunities are enor-mous. Research suggests that in China,for example, half of all households willbe part of the middle and affluentclasses by 2017.20 According to C.K.Prahalad, it is dangerous for Westerncompetitors’ long-term survival tolet emerging-market multinationalscompletely dominate the large marketsat the bottom of the pyramid — theplace now occupied by billions ofconsumers who will rapidly increasetheir purchasing power in the nextdecade or two.21 But the customizationand cultural flexibility required tosucceed in these markets is not secondnature to triad-based multinationalssince, for example, they tend to over-rely on standard processes when moreinterpersonal relationships need tobe built to succeed. These companiesmay need new global operating modelsat the local level.

If our study does not uncover anynew global operating models amongemerging-world champions (a hypoth-esis that cannot be ruled out) — that is,if the emerging-world leaders aremerely catching up with triad-basedcompanies, this would suggest thattriad managers need to create thenext generation of global operatingmodels to maintain their lead.

For managers from emerging-marketcompanies, many of the issues aresimilar. Succeeding in the triad may

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require very different global operatingmodel configurations than those neededto succeed in emerging-markets. Areview of global operating models willuncover where they need to change,what’s working, and how to discernand implement best practices.

Conclusion

Research comparing the global oper-ating models of emerging-marketand triad-based companies is needed,because there’s persistent uncertaintyabout whether emerging-marketcompanies have developed innovativeglobal operating models that give thema competitive advantage in a multi-polar world. We need to understandbetter under what contingencies certainconfigurations of global operatingmodels deliver superior performance. Todo so, inverting the lens and focusing onemerging-market leaders is important.In this note, we have identified a fewresearch opportunities and proposedsome preliminary questions. Subsequentnotes will follow as our work progresses.

About the authors

Stéphane J.G. Girod is a researchfellow with the Accenture Institutefor High Performance Business; he isbased in London. Joshua B. Bellin is aresearch associate with the AccentureInstitute for High PerformanceBusiness in Boston. Robert J. Thomasis the executive director of theInstitute for High Performance.

Acknowledgements: We also appreciatethe insights of Professor Marjorie Lylesof Indiana University and those ofAndrew Hill, Masud Arjmand, Paul Nunesand Philippe Roussiere, all of Accenture.

About Accenture

Accenture is a global managementconsulting, technology services andoutsourcing company. Combiningunparalleled experience, comprehensivecapabilities across all industries andbusiness functions, and extensiveresearch on the world’s most successfulcompanies, Accenture collaborateswith clients to help them becomehigh-performance businesses andgovernments. With more than 181,000people serving clients in over 120countries, the company generated netrevenues of US$23.39 billion for thefiscal year ended Aug. 31, 2008. Itshome page is www.accenture.com.

About the Accenture Institutefor High Performance

The Accenture Institute for HighPerformance develops and publishespractical insights into critical manage-ment issues and global economictrends. Its worldwide team of researchersconnects with Accenture’s consulting,technology and outsourcing leaders todemonstrate, through original, rigorousresearch and analysis, how organizationsbecome and remain high performers.

Notes1 Accenture defines “multi-polar world” as “a

world characterized by multiple centers of

economic power and activity” in contrast to

the one dominated for decades by the US,

European and Japanese economies. See The

Rise of the Multi-Polar World, Accenture

Policy and Corporate Affairs, 2007.

2 Fang Lee Cooke, Competition, Strategy

and Management in China (UK: Palgrave

McMillan, 2008).

3 Ming Zeng and Peter J. Williamson, Dragons

at Your Door (Boston: Harvard Business School

Press, 2007); Peter Engardio, ed., Chindia: How

China and India Are Revolutionizing Global

Business (New York: McGraw-Hill, 2007).

4 David A. Nadler and Michael A. Tushman,

Competing by design: The power of

organizational architecture (New York:

Oxford University Press, 1997).

5 Zeng and Williamson, Dragons at Your Door;

Engardio, Chindia; Accenture, Multi-Polar

World 2; Boston Consulting Group, The 2008

BCG 100: New Global Challengers, 2007.

6 Cooke, Competition, Strategy and

Management in China.

7 Gili Drori, John Meyer and Hokyu Wang,

Globalization and Organization (New York:

Oxford University Press, 2006).

8 Richard Daft, Essentials of Organization

Theory & Design (2nd ed.) (Cincinnati, Ohio:

South Western College Publications, 2001);

Sumantra Ghoshal and Christopher A.Bartlett,

The Individualized Corporation- A

Fundamentally New Approach to

Management (London: Heinemann, 1998);

Michael Treacy and Fred Wiersema, The

Discipline of Market Leaders (New York:

Perseus Books, 1995).

9 Accenture, The Right Set-Up for Going Global,

http://www.accenture.com/Strategy, 2007;

Danny Miller, Peter H. Friesen and Henry

Mintzberg, Organizations: A Quantum View

(Englewood Cliffs, NJ: Prentice-Hall, 1984).

10 Accenture, Multi-Polar World 2.

11 Kate Hutchings and Kavoos Mohannak,

Knowledge Management in Developing

Economies: A Cross-Cultural and

Institutional Approach (Cheltenham:

Edward Elgar, 2007).

Global Operating Models in a Multi-Polar World

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12 Cooke, Competition, Strategy and

Management in China; Accenture,Multi-Polar

World 2; Alan M. Rugman and Jing Li, “Will

China’s Multinationals Succeed Globally or

Regionally?” European Management Journal

25(5): 2006.

13 Accenture, Multi-Polar World 2; Boston

Consulting Group, The 2008 BCG 100: New

Global Challengers; Niraj Dawar and Tony

Frost, “Competing with Giants: Survival

Strategies for Local Companies in Emerging

Markets,” Harvard Business Review, March–April

1999; Tarun Khanna and Krishna G. Palepu,

“Emerging Giants: Building World-Class

Companies in Developing Countries,”

Harvard Business Review, October 2006.

14 Cooke, Competition, Strategy and

Management in China.

15 Signe M. Spencer et al., The Indian CEO: A

Portrait of Excellence (New Delhi: Response

Books from Sage, 2007).

16 Khanna and Palepu, “Emerging Giants”;

Khanna and Palepu, “The Right Way to

Restructure Conglomerates in Emerging

Markets,” Harvard Business Review, July—

August 1999.

17 Peter A. Hall and David Soskice, Varieties of

Capitalism: The Institutional Foundations

of Comparative Advantage (Oxford: Oxford

University Press, 2001).

18 Christopher A. Bartlett and Sumantra Ghoshal,

Managing Across Borders: The Transnational

Solution (Boston: Harvard Business School

Press, 1989).

19 Zeng and Williamson, Dragons at Your Door.

20 Accenture, Multi-Polar World 2: The Rise

of the Emerging-Market Multinational,

https://publishing.accenture.com/PCA/Our_

Programs/Global_Trends/Multi_Polar_World_

2.htm, (London, 2008).

21 C.K. Prahalad, The Fortune at the Bottom of

the Pyramid: Eradicating Poverty Through

Profits (Philadelphia: Wharton School

Publishing, 2004).

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