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RUNNING A GLOBAL CORPORATION - Michigan …-running a corporation for dummies

By Tomas Hult
Executive Briefing: What does it take to run a global corporation? Are there too many
environmental and industry forces to think about? What about the strategy and organizational
factors? No worries, it can all be paired down to a manageable few.
Friedman's (2005) book "The World is Flat" has - economic, governmental, technological, sociocultural,
made executives running multinational and competitive - represent the overall environmental
corporations re-think their business models. forces (i.e., external conditions) that determine how global
Whether the world is really flat appears to be of less the environment is and the need to compete with a global
importance than to figure out how a corporation can strategy. As such, these five forces cover all the critical
become more global. So, being a "multinational" is out external conditions in the environment that affect the
and being "global" is in - but what does it mean to be potential for globalization.
global and what should a global corporation focus on? The pharmaceutical industry makes for a good
A global corporation is not going to be everywhere in example to illustrate the environmental forces. For
the world but it has the strategic resources to operate example, Pfizer states that "our businesses are
worldwide and, most importantly, it maximizes profits on conducted in intensely competitive and often highly
a worldwide basis. Such corporations do not look for regulated markets" (Pfizer 2006 annual report). Likewise,
differences around the world they look for similarities that "most of Johnson & Johnson's business is subject to
can be stressed in developing a global strategy. They varying degrees of governmental regulation in the
also emphasize a small but critically important set of countries in which operations are conducted, and the
environmental and industry forces to research, analyze, general trend is toward increasingly stringent regulation"
and respond to instead of tackling all these forces that (Johnson & Johnson 2006 annual report). Such effects
are external to the corporation. are critical given the exposure many pharmaceutical
The same goes for the corporation's strategy and corporations have internationally. Abbott Laboratories'
organizational architecture. Attending to every problem "sales outside the US make up more than 45% of
and every aspect of the strategy and organizational Abbott's net sales." (Abbott Laboratories 2006 annual
factors that could potentially be issues is not effective. report). To deal with environmental forces, successful
Instead, global corporations focus on a select few factors pharmaceuticals invest in a portfolio of products and rely
that can make them winners. And, best of all, the on research and development (R&D) done by partners
environmental and industry forces and strategy and along with their own R&D investments to be successful.
organizational factors that trigger global success are
universal across most corporations. So, start by asking: Industry Forces
Michael Porter's "five forces" from his 1980 book
? How global is the environment? Competitive Strategy represent the classical way of
? How global is the industry? examining industry forces. They are: determinants of
supplier power, determinants of buyer power, threat of
? How global should the strategy be? new entrants, rivalry of existing firms, and threat of
? How global should the organization be? substitute products. These forces span industries and the
globe. As such, they work well in examining how global
Continue by attending to the mission-critical an industry is as well.
The energy industry, with some of its corporations,
environmental forces, industry forces, strategy factors, represents a unique example to illustrate Porter's "five
and organizational factors. The important elements of forces." For example, ONEOK states that "despite
these "Four F's" and the relationships among them are significant consolidation in the recent past, the U.S.
illustrated in the figure on the next page. midstream industry remains relatively fragmented, and
Environmental Forces ONEOK partners faces competition from a variety of
Numerous classification systems exist to describe the
companies, including major integrated oil companies,
business environment, ranging from a few to a substantial
major pipeline companies and their affiliated marketing
number of forces in the environment. However, five forces
companies, and national and local natural gas gatherers,
processors and marketers" (ONEOK 2006 annual report).
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The computer industry makes
for a good example to illustrate
global strategy issues. For
example, Seagate states that
"we expect that price erosion
in our industry will continue for
the foreseeable future...to
remain competitive, we believe
it will be necessary to continue
to reduce our prices as well as
introduce new product
offerings that utilize advanced
technologies prior to that of
our competitors to take
advantage of potentially higher
initial profit margins and
reduced cost structure on
these product introductions"
(Seagate 2006 annual report).
Successful energy corporations deal with industry forces Success in this industry is a function of melting the five
by adopting as flexible of an organizational structure as is strategy factors into a synergistic "global offering," but
possible, engage in joint ventures, and make advances in with particular attention placed on market involvement
renewable energy (e.g., bio energy). and marketing operations.
Strategy Factors Organizational Factors
Strategy can be as unique as every fingerprint of The final set of factors involves the organization itself.
every person in the world but that would be highly Contrary to strategy which can be changed rather
ineffective in maximizing global profits. Motivated by frequently, assuming the corporation is nimble enough to
George Yip's (2003) Total Global Strategy II book, with do it, the architecture of the organization itself cannot
some updates for today's global marketplace, five change too often. Frequent organizational changes would
strategy factors are paramount in running a successful result in loss of value to customers, loss of the
global corporation. They include: market involvement, corporation's global position in the marketplace, and loss
product standardization, marketing operations, of motivation by employees. As such, it is important to
competitive moves, and supply chain management. "lock in" a preferred architecture - structure, processes,
functions, people, and culture - and focus more of the
? Market involvement involves the choice of country-markets effort on understanding the environmental and industry
in which to conduct your business and the level of activity in forces and what can be done with the corporation's global
each market. strategy to maximize global profits.
The aerospace industry makes for an interesting
? Product standardization involves the extent to which a example to illustrate some of the organizational factors in
worldwide business offers the same or different products in play globally. For example, Alliant Techsystems states
various countries. that "we consider a diverse workforce to be essential to
our success as well as an important social responsibility"
? Marketing operations involves the extent to which a (www.atk.com). Another example is Precision Castparts
worldwide business uses the same brand names, advertising, Corp. which states that "our emphasis on low-cost, high-
type of channels, and other marketing elements in different quality products and timely delivery has enabled us to
countries. become the leading supplier of structural and airfoil
castings for jet aircraft and IGT engines and to expand
? Competitive moves involve the extent to which a worldwide
into the structural airframe and armament markets"
business makes competitive moves in individual countries as a
(www.precast.com). On the other hand, Boeing simply
part of a global strategy to proactively set strategy or to
created a "Vision 2016" where the focus is on "people
reactively combat competitors.
working together as a global enterprise for aerospace
leadership" (www.boeing.com).
? Supply chain management involves the choice of where
to locate each of the activities that constitute the entire global
value-chain - from research to production to after-sales - and
the operations of connecting the nodes in the chain.
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Adopt EISOF4 and Succeed Globally architecture for at least 10 years. But, keep in mind that
All corporations cannot be all things to all people at this is not an easy task in today's high-speed time. At the
all times, and especially not in the markedly diverse same time, more frequent changes to the organization
global marketplace. But, should that stop corporations than that will cost more than it benefits you.
from running a global corporation? Of course not! So, as a final word, practice the EISOF4 (= EISO F-
Instead, be selective in tackling the environmental and Quadratic) which refers to the four forces/factors ("F") in
industry forces - knowing more is not better, knowing play internationally for global corporations and the notion
effectively and efficiently is. that there is a multiplicative effect among these
In the same vein, expanding the corporation's forces/factors (i.e., environmental forces, industry forces,
portfolio of strategic options beyond a certain point is strategy factors, and organizational factors). As such,
usually a waste of effort. Stop when you have figured out synergy has to be achieved among the four F's to create
the five strategy factors of market involvement, product an advantage in the global marketplace that is
standardization, marketing operations, competitive sustainable. gBR Article 02-01, Copyright ? 2008.
moves, and supply chain management. It will take all the
effort and resources that your corporation can muster to About the Author
master those five factors, and they account for virtually all Tomas Hult is Professor of International Business
of your global success so why bother with more and Director of the International Business Center in the
investments in additional strategic factors? Eli Broad Graduate School of Management at Michigan
The organizational factors are trickier. Here, the goal State University. He is also Executive Director of the
should be to "set in stone" the architecture of the Academy of International Business and co-founder of
corporation for some time. Changes that are made too Hult Ketchen International Group, LLC. Dr. Hult can be
frequently are counterproductive no matter how logical contacted at +1-517-353-4336 or hult@msu.edu.
they may be at the time. Count on having the same
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