Developments in global organizations

From the 50s to the future

In this McKinsey Quarterly article, “The past and future of global organizations” Wouter Aghina, Aaron De Smet, and Suzanne Heywood provide a nice review on developments in global organization thinking since the 1950s.

Here are some comments on the article and our thoughts around the themes it raises.

McKinsey recognizes that solutions to the challenge of making global organizations work need to span structures, people and processes. One dimensional solutions rarely work for long.  However they do anticipate a shift to a more process-weighted approach as a likely next stage of development.

Indeed in our work with global organizations, we see a lot of emphasis on process centric solutions. In particular the growth of “horizontal” processes cutting across the traditional vertical silos of function and geography – such as ER or supply chain systems.  These are useful, even essential, integrating mechanisms as we develop global supply chains, serve global customers and develop more integrated business functions.  But, as they attract power and resources and grow in importance (most value creation after all is now horizontal and cuts across functions and geographies) we run the risk that these, often linear, processes will create their own horizontal silos replacing the old vertical ones.

A full SAP, Oracle or Microsoft systems implementation for a large global organization can take five years or more and hundreds of millions of dollars. The projects take on a life of their own and often mandate very linear information and decision flows.  Process at scale can also easily prevent agility, change and flexibility. Changing a global process can be so difficult and expensive that it is effectively impossible.

This linear approach misses the essential duality of global organizations; they need to be both global and local, they need healthy functions and business units, they need stability and change. These dilemmas are the essence of being a global organization.  They are constant dynamics to be balanced; not problems to be solved once and for all. They don’t respond well to linear processes or one dimensional problem solving.  Adding linear horizontal systems to the linear vertical ones won’t solve this problem; it will just make it more explicit. It is the trade offs and decisions that we make at the point of intersection of those dual forces that define success.  What sits at the intersection of these forces are people. It is their skills, capabilities and ways of working that are likely to become the constraint in the success of global organizations.

The article touches on the emergence of new, more social processes that support the learning and collaborative efforts of the organization by enabling more connectivity.  This is a promising development; if social processes can support the “soft structure” of networks, communities, teams and groups that really get things done in complex organizations they may reduce the constant search for formal structural solutions and continual reorganizations. They are also likely to undermine traditional authority and control.  The challenge will be how to integrate these social technologies into our way of working at scale. It is not enough to enable an internal Facebook system and hope that people will work it out for themselves.

So back to McKinsey’s contention that durable solutions combine structure, process and people. We agree. We also see a focus today on greater process orientation, but we think that longer term we need to focus much more on people – skills, ways of working and change management.

Thousands of companies have successfully implemented ERP and other processes to support a more integrated way of working. It is complex, time consuming and expensive but it does work. Fewer have invested significantly in cracking the way of working necessary to become a truly global organization – expect people capability to be your bottleneck as a consequence.

Source: “The past and future of global organizations”: by Wouter Aghina, Aaron De Smet, and Suzanne Heywood, published by McKinsey Quarterly, September 2014.

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