Decentralized Decision Making
As important as the “hardware” of organizational structure is the “software” that runs on it — the set of decision rights, management processes, and control mechanisms that brings the structure to life and determines its overall effectiveness. For most multinationals, the matrix is a necessary way of life; the benefits of horizontal coordination across business units and functions compared with those of the vertical silos that they had in decades past are simply too significant to ignore. But as companies grow larger and more global, problems inevitably arise with the conventional matrix structure. The decision-making process drags on, the right judgment calls aren’t always made, and overhead costs sprout at every node in the organization to support cumbersome management processes.
The root cause is often the way information flows through the organization, and the determination of who is empowered to decide what. With every dimension that is added to a matrix (product groups, customer business units, functions, regions, and so on), the potential for decision making to grind to a halt increases exponentially. Because a more concentrated approach to decision making would be antithetical to a multipolar world, companies need to promote greater decentralization and autonomy, and differentiated levels of authority.
Decision rights should be pushed down into the organization, and the center should involve itself only in critical enterprise-level decisions such as portfolio strategy, capital allocation, and global brand management. Company leaders should establish a comprehensive decision-rights architecture that reflects the levels of importance of various stakeholders in complex decisions. Over time, this approach unshackles the organization, and a new management paradigm and set of behaviors take hold.
But increased decentralization also requires greater transparency, along with new mechanisms to ensure accountability and manage risk. Companies need to adopt disciplined and coordinated decision-making and performance management processes. First, they should identify key performance indicators (KPIs) that link strategy to operations. They then need to link these KPIs to the company’s primary management processes (strategic planning, budgeting, compensation, and ongoing performance management). Finally, companies must build information systems and controls to support this approach by extracting and monitoring the right kinds of information.
A Global Talent Pool
The talent issue for global enterprises starts at the top. The composition of boards and executive committees remains largely influenced by companies’ historic center of gravity and does not represent an ideal diversity of experiences. Senior management often finds it difficult to shed old modes of operating and open up opportunities to new talent based on merit and breadth of perspective rather than tenure or internal political affiliation.
Agribusiness giant Bunge Ltd. illustrates how this facet of the talent management challenge can be managed successfully. Bunge has focused on selecting board members from around the world who have the international experience to steer the strategy of a truly global company. Not only does the current board have knowledge of investing and running large businesses in all the key markets where Bunge operates, but it also boasts expertise in many areas related to agriculture, such as logistics, advertising, and food processing and packaging.
Starting with the board and senior executives, global companies need to forge more diverse management teams able to understand the opportunities and the challenges the business faces in its current and future markets. Successful global companies develop comprehensive human capital strategies to acquire and retain talent in key markets around the world. Typically these plans are anchored in the company’s business strategy and focus on differentiating the company’s approach to markets by segmenting its talent pools; improving managers’ capabilities, behavior, effectiveness, and accountability; taking a holistic approach to human capital programs; and building employee engagement.