Executives at global companies say their organizations have relatively strong capabilities in some areas that are critical to global operations, such as culturally flexible leaders and helpful processes for entering markets and managing risk, according to a new survey. But the data reveal room for improvement of some crucial capabilities, including high employee motivation, which only about half of executives at global companies say is true of their organizations.
The survey asked executives which regions their organizations operate in, how much of their revenue they earn outside their home countries, and a series of questions about structures, processes, and culture relevant to companies with global reach. In addition to the overall findings on operations, the results highlight some strengths and weaknesses that vary depending on how global a company is. For example, a relatively high share of executives at companies that operate in more than one region and outperform their peers say their organizations’ ability to create networks across the company is a source of competitive advantage, while those at successful global organizations that operate in only one region highlight their relative strength in motivating employees and providing them with a compelling work experience. In addition, executives who report that their companies became global through organic growth (as opposed to M&A) report greater strength in areas where, in our experience, global companies tend to be fairly weak, such as communicating a clear vision across the organization.
Finally, regardless of company types or how well executives think they’re performing now, respondents indicate that developing leaders who are culturally and functionally proficient across regions is a key to more effective multiregional operations.
How global companies manage
Overall, respondents at all kinds and sizes of companies report fairly strong capabilities in processes and functions such as managing risk, creating networks across the company, and building effective relationships with governments (see Exhibit 1, as well as sidebar, “Key to full wording of survey statements”). There are, however, areas where executives at many companies see room to improve—notably, in allowing divisions or regions to contribute their own insights to the innovation process and in offering workers a compelling value proposition.
We focused most of our analysis on global companies, defined as those respondents say derive more than half of their revenue from outside their home countries. Executives at these organizations tend to say their companies are more effective at operating globally than others because they have processes that allow them to scale up and enter new markets more easily, the right risk management infrastructure is in place, and executives work well across cultures and split their time effectively (Exhibit 2).
We then looked at how executives’ views vary according to the scope of their organizations’ operations. Among them, we found two groups: those whose organizations operate in more than one region and those whose organizations earn revenue from many regions but operate in only one. Within both groups, we also singled out executives by their organizations’ level of financial success: those who say their organizations have been outperforming competitors since the beginning of the financial crisis. Some of the differences in assessed capabilities are intuitive, such as the finding that a bigger share of executives at companies with operations in just one region say they can offer a compelling value proposition to their employees (Exhibit 3). Others are less predictable—for example, the finding that 71 percent of executives at companies with multiregional operations say their organizations are good at developing innovative products and services for customers in all markets, compared with 67 percent of those that derive revenue from many regions but operate in only one. This may indicate an innovation advantage in having people on the ground.
However global their organization is, respondents say that global companies are, on the whole, better able to create value than local competitors and that the extra value outweighs the extra complexity of expanding into new regions. This may partly reflect the fact that many of the local companies represented in this survey were substantially smaller (in terms of annual revenue) than those earning revenue from multiple regions. Nonetheless, there are some areas where executives at high-performing local companies indicate they are at least as happy as, or happier than, those at high-performing global companies, including relationship-building with governments and executives’ ability to manage their responsibilities sustainably (Exhibit 4).
How you get there matters
There are two ways to go global—organically or through M&A—and the majority of respondents to this survey say their companies did so organically. We looked again at those global companies whose respondents say they are high-performing; 66 percent of those operating in multiple regions say they grew organically, and 59 percent of those operating in only one say the same. Across the board, executives at these global companies indicate several areas where organic growth seems to be associated with an edge in performance (Exhibit 5). The differences are starkest among these high performers, but they parallel differences among all respondents. It’s notable that some of these are areas where executives see all organizations as relatively weak; the stress of merger integration, these responses suggest, puts additional stress on processes that are already strained.
Improvement is personal
No matter how global an organization is or how well it’s performing, respondents cite leadership as a key factor for improving operations across regions (Exhibit 6). The numbers are remarkably consistent: just over a third choose developing culturally and functionally proficient leaders as an important way to be more effective globally, significantly more than select any other option. It’s notable that there is some mismatch between the other top choices and some of the areas in which respondents indicate their organizations are weakest: many suggest that more focus on internal networks would help, but most executives also think their organizations do this pretty well. And there’s slightly less emphasis on improving the performance culture as a way to improve, even though most see motivation as a current weakness. This may also reflect what issues matter most to organizations—networks are more important to successful globalization than employee motivation, for example—and where they should continue to focus their efforts to ensure effective future operations.
Companies of all kinds can do a lot to improve innovation, executives indicate. Global companies may benefit from the finding that having people on the ground seems to be associated with improving companies’ ability to meet customer needs in many regions.
Improvement is possible even at companies whose executives say they’re succeeding with a global strategy. The key, executives say, is to develop leaders who can navigate the cultural and functional demands of their operations.
Executives at companies that grew organically rate themselves higher on several important capabilities, compared with executives at companies that grew through M&A. This point may be worth exploring at companies where global expansion is under consideration.