The Future World Of Alliances

In keeping with the trend toward globalisation, many American companies now consider themselves to be multinationals and call themselves global. apart from semantic precision, there are practical reasons for getting the definitions straight and accurately understanding how your organisations is positioned on the scale that moves from 100 per cent domestic to 100 per cent global.

An Ernst & Young survey of CEOs gave helpful definitions of domestic, exporter, transactional, and global companies, which I have slightly modified as follows:

A domestic company conducts all manufacturing and selling in one country.

An exporter company has sales in many countries and conducts strategic decision making from its home country.

A transnational company manufactures and sells according to an integrated plan encompassing countries of a region.

A global company has sales worldwide and conducts strategic decision making outside the home country:

On the basis of these definitions, survey participants were asked to characterise their organisations and compare their view of their company five years ago, in the present, and five years hence. A majority of the companies saw their organisations transitioning into transnationals and global operators and confirmed that they would be using alliances as the methodology to assist them in the international expansion. Of course, as with any survey, the answers given by executives regarding their own companies global status must be qualified by their lack of objectivity.

In my experience few companies are actually global although their executives describe them as such.

These definitions are useful to an orgnisation for the specific purpose of pinpointing where strategic, and therefore possibly alliance, decision making will take place. If you are a US company partnering with a Japanese company that calls itself global but whose decision making takes place at headquarters in Tokyo, you are dealing with a company that may essentially be an exporter. in the planning stage of an alliance, the getting - to-know-you period, the locus of decision making is one of the questions that must be asked and answered. Whether the label global is really appropriate is not always a simple determination.

A global company: True or false?

We have had many debates with one of our clients that is 50 per cent owned by an Asian company on the subject of globalism and multifaceted, multicultural decision making. Although the credo of the US company was to empower managers to make decisions, the reality was different. In fact, decision making was controlled at the top of what was a hierarchical company. The Asian company was clearly centrally controlled. The success of the ten-year alliance had depended on the goodwill and understanding of the two CEOs, one in Asia and the other in the United States. Both companies had far-flung, successful, and intricate international operations, called themselves global and discussed the importance of input of country managers.

But the bottomline was that they were both exporters. Local and country general managers understood this. they made allowances for consensus decision making and the time it took on the Asian side, and the lack of in-depth research and the drive to enter a fast changing market on the US side. The dissimilar approaches were computed into every decision and its implementation, and compromise was reached. There were few misconceptions about where the real power resided in each organisation.

As a result, the alliance worked well. What came out in our discussions was that the US managers wanted an end to the pretense of a collaborative, multilocal, decentralised organisation.

Lets call it what it is, one manager complained. We all kn-ow who makes the decisions aro-und here. We waste so much time giving lip service to team decision making and consensus building. It seems to work all right the way it . Why are we trying to become a collaborative organisation when everyone knows were not?

Some companies struggle long and hard to change into global operators. In the consumer-products area, a number of organisations have turned themselves upside down, with the customer at the head of the information flow and all global decisions driven by that local understanding. That means that they have created local product modifications, service changes, tailored niche promotions, advertising, employee incentives and reward systems, plus myriad other business processes to fit the cultural envrionment.

The reins remain in Europe

Little progress could be made with one particular alliance, of a large European multi-billion-dollar energy industry company and a smaller US organisation with $200 million in revenues. The European company, headquartered in Munich, presented itself as global and emphasised that its strategic decision making took place around the world. The reality became clear in one project among many the two companies were working on. The need arose to create a way to reward and provide incentives to a group of employees who were working night and day on innovative new technology. The senior management of the US company suggested that each company create a phantom stock plan, which would reward the individual efforts of managers of both the German and the US companies, allowing them to share in the increased good fortunes of the venture. The larger company was unable to modify its incentive system because of certain corporate policies and procedures that were a function of their country culture: Their European culture did not reward enterpreneurship, instead favoring loyalty to the larger group and organisation. The smaller, US-based company readily agreed to the suggestion.

Thus even though the strategic opportunity dictated a change in policy for the European company that was appropriate for this entrepreneurial venture, the real location of decision making became clear. It was in Germany.

All the employees of the venture, regardless of country culture, were disappointed when no agreement on compensation tied to increased value of the venture could be reached. All of them had heard of the great rewards from stock appreciations that individual entrepreneurs had reaped in the United States. However, it was not to be.

One solution suggested by the smaller company was to spin the project off into a separate entity in which both groups of employees could be equally vested and rewarded.

The staid larger company, which was Mature and Consolidating, rejected that proposal.The smaller company, which was a high-growth, Hockeystick-stage company, could not understand why such a plan couldnt be worked out. After all, all the employees were in favor of it, the project would not only meet but was expected to far exceed the original projected return on investment (ROI) for both entities, and it would be consistent with the mutual goals of integrated system development for both companies as an industry standard. But the larger organisations country and corporate culture dominated managements thinking and they remained opposed to the concept. it would pit individual employee interest against the protection of the corporate persona, and from their long term perspective, ROI as a value did not supersede corporate integrity. The corporation was seen to be an entity that serves a greater good than that of a few individuals, namely, the good of the community, providing long-term and steady employment not encouraging individual enterepreneurship.

Unfortunately, the project began to lose momentum; what had been a special opportunity for a major breakthrough in their respective industries began to disappear. Damage control is in place, but it is increasingly difficult to keep the excitement and commitment of the technologists at its former high level.

A possible solution for this relationship might be a cross licensing arrangement with bonuses related to performance. This will not be the big kill that both employee groups were hoping for, but it would be better than nothing and would preserve the corporate and community interests of the one partner while rewarding the ROI expectations and individual efforts of both groups of employees.

The moral of the story is, that when you are forming an alliance, it is imperative that the actual location of strategic decision making be discovered early on in the process of relationship development, in order to save time and avoid complications later.

Small Is Good