Agility has become the lifeblood of a successful corporate. That cultural transfusion is not exactly easy for more traditional boards to accept, but in such volatile times it’s now often the case that it is the divisional and country managers who need to make key decisions in their respective local markets to keep that competitive edge.
Julian Birkinshaw, a Criticaleye Thought Leader and Professor of Strategy and Entrepreneurship at London Business School, says that “in a context where the world is perhaps changing more rapidly than it has in the past, the companies that succeed will be more agile and that means they are more adept at identifying new opportunities and moving quickly.”
Complacency over operating models will be punished as will holding on to the view that things will return to what they were before the financial crash. Ruth Cairnie, Executive Vice President for Strategy and Planning at Shell International, says: “We have had unprecedented volatility in the past few years and our projection is that this will increase… You can expect many changes and an uncertain environment so it is managing through that – it is about being able to deploy resources or redeploy resources quickly.”
Mark Phillips, SVP, Medicine and Process Delivery for GlaxoSmithKline, says: “To me, ‘corporate agility’ is about the ability of an organisation to respond and act quickly in the face of external drivers, be they threats or opportunities. This requires an organisation that is well connected to its environment and can scan for opportunities and challenges and a structure that can flex to adopt new business models, channels, products and services. It also requires the organisation to be able to formulate and maintain a simple but sound strategy.”
The decision to centralise or decentralise is something of a moving target, depending as it does on the relativity of industry, geography and profitability. Indeed, for a global business, the move to bring more decisions ‘in-house’ in tougher markets will not be exclusive to giving greater autonomy to MDs and CEOs in countries where growth and scale are easier to come by.
It’s a question which goes to the heart of the boardroom. David Mann, Managing Director for Management Consulting & Integrated Markets for UKI Accenture, comments: “You have to make strategic decisions as to where you invest for the future and where to retain the option to invest because you can’t do everything at once.”
Bala Chakravarthy, another Criticaleye Thought Leader and Shell Professor of Sustainable Business Growth at IMD in Switzerland, says: “Here is the challenge: do you build a structure based on the weight of current revenues or do you build one based on the potential for future revenues? Although there might be large, established markets like the UK and Germany, the scope for growth may be limited and therefore do you give more autonomy to a slightly smaller but higher growth market?”
The strategy, culture and values as defined by the HQ have to be clear. Mary Jo Jacobi, a Criticaleye Associate and a Non-executive Director of Mulvaney Capital Management, says: “The role of the headquarters seems to have changed a lot since I began my career from an almost militaristic command and control approach, to a totally decentralised laissez-faire approach, to today’s hybrid model where the HQ provides central guidance and functional leadership, but leaves some discretion as to local operations. Organisations must present a unified face and clearly defined brand, while promoting a culture that is nimble and takes into account regional and operational differences as well as the speed of change.”
Ruth elaborates on this point. “Standardising at a global level everything that you can makes a lot of sense. In my experience, you can always push that a lot further than everyone thinks… If you have different standards in each country, then it makes everything a lot more difficult, whereas if you have clear and common standards about how you design and execute projects, it becomes much easier to move resources around.”
That’s crucial when bringing changes into a business in an attempt to improve flexibility. By way of example, Ruth notes that two-and-a-half years ago a separate project and technology division at Shell was established “so that they then housed a pool of our project engineers as opposed to those resources being organised into local and regional teams”.
Bruce Cox, Managing Director of Rio Tinto Diamonds, observes that when operating across multiple countries with vast degrees of political and cultural diversity, “it’s essential for us to be an international company that has some minimums globally in how we operate in terms of our standards and behaviour… but we really need to feel local.”
During the past 12 months, the company has adopted a programme that it calls ‘Empowering the Node.’ Essentially, this codifies the ethical behaviour of staff and extends to providing more autonomy to senior managers so they have the ability to call the shots. “There is a minimum standard in terms of the way we work around health and safety requirements, community engagement and what we expect in regards to our operational integrity,” says Bruce. “Once that is defined, we then put a person into a country who we really trust and let them have the resources and a fair amount of scope and scale to make decisions so long as they are consistent with the larger values of Rio Tinto.”
For Mark, “the best organisations appear to have addressed the fundamental question of what must be done locally, such as customer interface, managing local relationships and stakeholders and local compliance, while also addressing those functions which should be central, mainly from an alignment or efficiency perspective in terms of financial management, systems, strategy and IT.”
Top to bottom
It’s fair to say that the notion of head office broadly driving strategy is certainly nothing new. But the complexity of markets combined with the need to be able to react quickly where necessary is different and those boardrooms which are in denial about this will at some stage be horribly exposed. David says: “For international businesses, the centralised model needs to understand how to work in a new environment… In many industries, value is destroyed because [the HQ] becomes too prescriptive at a local level.”
Gwen Ventris, Former COO for Europe and Executive Director at AEA Technology, says: “Many organisations are finding it increasingly difficult to differentiate their products and services and have become too distant from the customer. They have lost the ability to understand markets at the local level sufficiently well to be able to rapidly shape or respond to opportunities as they arise.
“Global corporates’ historical responses to these challenges have often been to decentralise, giving the P&L units more authority to take local decisions. While in most cases this is likely to be a step in the right direction, I believe that in the current context creating corporate agility requires significantly more than moving accountability for decision making closer to the coal face. It requires a strategic perspective which involves ‘shaping and influencing’ markets while having the flexibility to respond rapidly.”
The cultural and leadership challenges this poses are immense. Bala says: “Fast decision-making remains a big issue; I don’t know of any company that doesn’t talk about it but very few have been able to achieve this.”
According to Bruce, “corporate agility can be achieved through two primary levers, the first stuctural and the second cultural”. He explains: “By focusing on an organisational design that limits the layers and structure interposed between the CEO and operational employees, this enables the efficient flow of information and the speed and accuracy with which decisions can be made and implemented.”
Cutting through this is the challenge. From the perspective of leaders, there is a responsibility to communicate with clarity and not to let layers of bureaucracy and process blind them to what is going on in a business. Ruth says: “If you sit at the top of a big organisation – and that can be the sub-set of a business – it is extremely difficult to know what is happening. You can communicate frequently about what you want to happen but I actually think you need, in the right way, to bring in a feedback loop and find ways of engaging with the front line to test out what is really happening.”
In other words, engaging people and talking to them. “If you have two, three or four layers of management that you have to get through before influencing the front line, you can’t assume things are happening in the way you want them to,” continues Ruth.
Bruce states that bringing about change is pretty much impossible unless the leadership demonstrates and reinforces the values and systems that are being put in place. There has to be a visible and authentic, hands-on involvement by those who are driving the agenda, otherwise there won’t be any buy-in. “I am so frustrated by change being implemented by email,” he notes. “Emails do not change anything… It might inform you of what’s on the mind of a leader, but it doesn’t change behaviour. What changes people’s minds and behaviour is engagement.”
And it’s those inspirational qualities that will be required in abundance if businesses are to possess the leanness, flexibility, accountability and strategic vision to navigate the global markets.
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