A checklist for determining how—and more importantly whether—your firm should go global.
By Atul Vashistha
I’ve said before that a company that wishes to flourish in today’s global market must adopt a services globalization strategy. But not every company is ready to globalize every process today. A successful services globalization strategy takes diligent planning and thought—and that takes time and focused effort.
In the last piece on adopting a lifecycle approach (Secret #3), we talked about answering the following questions: Should the organization globalize? Why will the organization globalize? What will the organization globalize? When will it globalize?
The last two questions are more operational than strategic; the first two—about why the organization is globalizing and if it even should globalize, are purely strategic. In answering those strategic questions, an organization must look at globalization in relation to its overall business strategy. This is the fourth secret: Align business and globalization objectives. If the two don’t align, the organization is wasting its resources and should not globalize.
When talking about GE’s globalization strategies, former CEO Jack Welch, arguably one of the best strategists of modern business and a highly successful globalizer, says “If GE’s strategy of investment in China is wrong, it represents a loss of a billion dollars, perhaps a couple of billion dollars. If it is right, it is the future of this company for the next century.”
Not every organization will risk billions of dollars in its globalization strategy, but each runs the risk of unsuccessfully globalizing and missing out on the opportunity to complement business strategy with globalization. In order to successfully leverage services globalization—to “be right” in globalization decisions—organizations must ensure that their globalization strategy is driven by and aligned with their business strategy.
Ensuring That Business Strategy Drives Globalization Strategy, Not the Other Way Around
What follows is an attempt to offer insight into the questions that an organization needs to ask when determining whether or not its business strategy is in alignment with what it presumes its globalization strategy should be. Those questions are essentially twofold: First, is business strategy driving services globalization? Second, if so, what part—or parts—of your business strategy will globalization be able to help you execute?
As services globalization becomes a business imperative for industries from financial services to healthcare, companies will be even more inclined to jump on the bandwagon with their peers. Afraid of being left in the dust, too many companies globalize without really considering whether services globalization is right for them—and whether their particular approach to services globalization is the best one.
While it’s true that services globalization is becoming a business imperative and should receive due consideration from executives at every organization, services globalization is not a one-size-fits-all proposition: The way Company A executes its global strategy will not necessarily work for Company B, just as the reasons for Company B to globalize are not necessarily the same as Company A’s reasons.
In other words, too often globalization initiatives are taken on with no real strategy at all. Or an organization allows its globalization strategy to drive its business strategy. Successful globalizers, in contrast, develop very clear globalization strategies before setting one foot out the door, and those plans are driven every step of the way by the corporate strategy.
Applied Materials Group VP and CIO Ron Kifer says that aligning business and globalization objectives is really about securing the future for the company. “Your business strategy should be the primary driver of the globalization strategy because globalization doesn’t happen in isolation. If you look at what Applied Materials is doing with globalization, we’re all-around optimizing performance and focusing on the core, critical competencies of the organization, the cost-effectiveness of the solutions closer to our customers, and that means a different geographic footprint.”
Successful globalizers thoroughly assess their business process portfolio, financial state, goals, objectives, risk, and transformation needs, as well as the supplier landscape and market capabilities in provider locations. Using information from those assessments, successful globalizers build a globalization strategy that includes the following elements:
• Future proofing
• Risk management
• IP protection
• Service extension
• Resource redeployment
• Innovation management
Armed with a globalization strategy, successful globalizers develop an execution roadmap, which includes:
• Geographic placement
• Ownership model
• Third-party supplier relationships
• Transition timing
• Financial return
• Governance organization
Case Study: Too Much, Too Fast
One S&P 100 global investment bank offers a good example of a company that did not allow its business strategy to drive its globalization strategy. Instead, perhaps eager to jump on the bandwagon of financial services firms adopting services globalization, the company globalized too much, too fast.
The organization globalized its application development, application support and maintenance, IT infrastructure management, and internal IT help desk all at the same time. Overloaded and lacking a clearly defined globalization strategy, the investment bank began to experience performance and quality issues with its offshore internal IT help desk services.
To remedy the problem, the organization had to backtrack, taking steps that it would have been wiser to take initially, including securing buy-in from key client stakeholders, providing for effective knowledge transfer, and building a well-planned, solid governance framework. After taking those steps and determining that its newly defined services globalization strategy did follow its overall business strategy, the company was able to successfully resume its initiative.
Which Part of the Business Strategy Will Globalization Help Execute?
In addition to aligning its globalization strategy with its business strategy and ensuring that it is the business strategy that’s the driver, the successful globalizer has a clear idea of what part of its business strategy globalization will help execute.
Former Lenovo CIO Steve Bandrowczak explains that globalization is not just for the sake of lowering costs. “We were lowering costs not because we were not competitive in the industry. We were lowering costs because our stakeholders expected it and competition demands it. You keep getting back to what are the strategic objectives of your business.”
Bandrowczak added that in his staff meetings, the alignment between globalization strategy and business strategy was crystal clear. “If you had sat in my staff meeting, we didn’t say, ‘Okay we’re going to shut two data centers down and we’re going to save three centers.’ Instead, we said, ‘We’re going to improve our expense-to-revenue ratio from an IT perspective because we’re going to get in line with industry standards and we have to deliver $100 million to the bottom line of Lenovo.’ You constantly have to keep tying your global initiatives to those business and strategic directions.”
Case Study: Lack of Clarity and Lack of Definition
A Fortune 500 electronics company provides an example of an organization that did not develop a clear idea of the part of its business strategy that globalization would help execute before beginning its globalization initiative. As a result, the organization encountered a number of (avoidable) problems.
The company initially decided to offshore its corporate business customer service, retail customer service, levels 1, 2, and 3 customer support, order processing, accounts payable and receivable, and order-to-cash processes to third-party suppliers as well as a captive center in India and the Philippines.
Once the initiative was underway, the electronics company found significant performance and quality issues with corporate business customer service processes within its captive center. Additionally, the ramp-up of higher-end, customer-facing processes was slower than the company had originally expected.
After analyzing the problems that had occurred within its services globalization initiative, the organization realized that its fault lay in the failure to fully analyze its portfolio of processes to understand the fundamental what, when, where, and how questions that services globalization requires. Additionally, the company found that its fragmented processes needed to be aggregated and that an effective transition needed to be based on a detailed analysis of processes.
This Fortune 500 electronics company responded to the deficiencies it found in its services globalization rollout, re-planned the initiatives by answering those critical questions, and developed a clear picture of how globalization would help the company accomplish its business objectives. Now it has very successful offshore operations.
Case Study: Leading With Strategy
A Fortune 500 health and life insurance company provides a good example of the strategic considerations a company might make at different levels of the organization. This company had a very fragmented and inefficient life claims process, with no existing manuals or desktop procedures. Each examiner had his or her own version of the process and method for calculating claim amounts.
In addition, the organization was bogged down in paper-based calculations that were full of errors with no audit trail. Furthermore, process output/productivity, accuracy, and efficiency were not tracked. As a result, the firm was unable to leverage its systems and knowledge to compete in the market against new players.
This organization resisted the urge to adopt services globalization as a fix-it solution to its inefficiencies. Instead, it considered its strategic goals and how it could accomplish those goals with an aligned services globalization strategy. Each executive team member contributed in a different way to the strategic development: the CEO had a strategic focus, concerned with leading the business into the future; the CIO took a performance focus, concerned with flexibility, productivity, guaranteed services levels and proven technology. The CFO took a bottom-line focus, concerned with reducing current costs and managing future costs.
Instead of using services globalization as a substitute for sound business strategy, this Fortune 500 health and life insurance company used a well-developed services globalization strategy to complement its business strategy, which was geared in part toward overcoming several process inefficiencies.
Atul Vashistha is founder and chairman of Neo Advisory (formerly neoIT), a management consultancy focused on offshore and global sourcing. He can be reached atul@neoIT.com.