‘The end of a golden age: global companies now in retreat’; ‘Protectionism growing around the world’; ‘Digitalization is coming now’.
Dramatic headlines sell newspapers but to some extent they have a point: for the largest 500 firms worldwide, in eight out of ten sectors, multinational firms’ aggregate sales grew more slowly than their domestic competitors in 2016, according to analysis by The Economist
In 2014 ‘global connectedness’ finally returned to its pre 2008 crisis peak, but its expansion slowed down in 2015 (although didn’t reverse); according to detailed analysis by DHL exploring trade, capital, information and people flows from 2005 to 2015 across 140 countries. This deceleration was driven in particular by weaker trade, with mounting evidence that protectionist policies were in part to blame.
This is the context in which global matrix organizations now need to compete. These challenging external conditions are causing many matrix organizations to lurch from one pole of the matrix to the other, when in fact its purpose is to be flexible. The three main strategic tensions we see matrix organizations struggling to reconcile are:
- Agility and scale
- Connectivity and focus
- Empowerment and governance
However an effective global matrix organization in today’s world needs to combine sufficient scale AND agility, effective governance AND empowerment; connectivity AND focus; not swinging between the two extremes.
For example when we introduce common Information Systems and make decision information available globally across the matrix, we need to make sure that this doesn’t pull us into making the decisions globally too. If we provide better quality, globally consistent information to local decision-makers to allow them to make better local decisions, then we get the best of both worlds.
The matrix organization is designed to allow both ends of these scales to happen at once, it’s just that as humans we tend to pursue one pole of the matrix to the detriment of the other – until we realise we’ve gone too far and swing back the other way. This is only natural, and indeed the dynamic change is useful as anything stable others can more easily copy. But in doing this we must aim to learn which elements of our business work best at each end of the scale, e.g. what’s best performed by local teams, and what by central teams. This way our journey becomes a forward ‘learning loop’ rather than a static pendulum going nowhere.
A truly agile company needs a stable core backbone that doesn’t keep changing dramatically – so people know where their ‘home’ is and can build up expertise, according to OD experts at McKinsey. It also needs a structured system where cross-functional teams can be quickly assembled to meet internal and external client demands, and a constant feedback loop to allow small changes to happen fast – i.e. a matrix organization that’s working right.