A recent article over on the McKinsey Quarterly on Understanding your Globalization Penalty is very thought provoking and a must read for any organization — or supply chain — looking to extend its global reach. Not only does globalization bring with it a risk for every opportunity — creeping complexity, culture clashes, and courageous counters from local competitors to name a few, but, high-performing global companies consistently score lower than more locally focused ones on several critical dimensions of organizational health — direction setting, coordination and control, innovation, and external orientation. This is backed up by data from McKinsey’s organizational-health index database which contains the results of surveys of more than 600,000 employees who assessed the health of nearly 500 different corporations.
This is scary. We’re in a knowledge economy driven by innovation, which requires direction, coordination, and external collaboration with suppliers and partners. Everything that globalization appears to be putting at risk!
Given that at least 50 percent of an organization’s long-term success is a function of its health, this is doubly troubling. Especially since McKinsey restricted the study to 20 “local champions”, which had outperformed their industries over the previous ten years, and 18 “global champions”, which had likewise outperformed their industries and met the composite criteria for full globalization — the cream-of-the-crop, if you will.
So what’s the problem? According to interviews McKinsey conducted with executives, it’s the familiar challenge of balancing local adaption against global scale, scope, and coordination, often hindered by existing internal networks and linkages [that] are ineffective for managing global-local trade-offs and instead just add costs and complexity. For example, many companies can’t identify transferable lessons about low-income consumers in one high-growth emerging market and apply them in another while others struggle when local entrants undermine traditional business models and disrupt previously successful strategies.
So what can you do? Get a health check and find out if it’s hurting you, where, and why. Then you can craft an appropriate action plan which may be to pull back and focus more on local sales. Sometimes your best market is down the street.