BUSINESSWEEK ONLINE : AUGUST 28, 2000 ISSUE
THE 21ST CENTURY CORPORATION -- THE NEW LEADERSHIP See the World, Erase Its Borders Customers operate globally, and now they expect worldwide service. CEOs must provide it or perish Hewlett-Packard Co. (HWP) Chief Executive Carleton S. ''Carly'' Fiorina faced the awful truth: H-P's lumbering organization was losing touch with its global customers. So Fiorina has radically reorganized the company to make it easier for purchasers of all sizes to buy from around the world. Now, multinational clients, for example, can go to just one sales and marketing group to buy everything from handheld PCs to supercomputers, in locales from Buffalo to Bangkok. It's global service for local needs. Fiorina is one of the many bosses rethinking the issue of worldwide management. They know that the companies that excel in the 21st century will be the ones that finally break down the remaining barriers between domestic and international operations. Customers don't care for those old distinctions: They're often operating globally themselves, and they demand the same level of service abroad that they get at home. And they expect the CEOs of the companies that serve them--like Carly Fiorina--to be the chief officer of globalization, too. Globalization demands the CEO's personal attention because it's one of the biggest trends in business. Already two-thirds of all industry either operates globally (think computers and aerospace) or is in the process of doing so (auto parts). Michelin, the oh-so-French tire manufacturer, now makes 35% of its money in the U.S., while Johnson & Johnson does 43% of its business abroad. ''We are all heads of international. The scope of every manager is the world,'' says Pasquale Pistorio, chief executive of $5 billion European semiconductor giant ST Microelectronics. And what these worldly-wise managers know is that the global company moves information at top speed through the organization. ''The name of the game is pattern recognition,'' says Orit Gadiesh, chairman of consultants Bain & Co. That means using executives as tag teams to spot trends around the world that could swiftly affect a whole company's future. CUMULATIVE SHOCKS. The fallout will be huge for those not positioned to stay on top of the latest trends. Motorola (MOT) was caught flat-footed when Nokia (NOK) emerged from the backwaters of Finland as its main rival. And European retailers were taken by surprise when a Spanish chain, Zara, figured out how to change the fashions in its stores practically every week. Those shocks will just multiply in the coming years as companies increasingly wield intelligence in farflung markets for competitive advantage. ''Losing abroad now may mean losing at home,'' says Subramanian Rangan, professor of strategy at the European Institute of Business Administration in Paris. ''It's innovate globally or die.'' The drive for seamless global innovation is forcing constant experimentation to get the right mix of local initiative, high-speed information flows, and corporate culture. At Swedish phone maker Ericsson, for example, top managers now pore over compensation schemes to make managers pay attention to global performance and avoid turf battles, as well as their own local operation. ''The trick is setting the right incentives to work together,'' says chief executive Kurt Hellstrom. Often, whole overhauls will be needed, even at longstanding multinationals. In the 1990s, Dutch electronics giant Philips experimented with matrix management, which organizes the company along product lines and country sector. But the scheme sparked too much conflict. ''We killed the matrix. It was too slow--it put the management board in a referee role,'' says Jan Oosterveld, board member in charge of strategy at Philips. Now Philips is trying something more flexible: Managers of individual businesses have primary global responsibility, while regional bosses or global account managers for key clients play a role as well. Increasingly, companies will also have to shift key operations to where the action is. Philips has moved headquarters for different businesses to the hottest region for new trends--the ''highest voltage'' market. Its digital set-top box business is now in California. The audio business is in Hong Kong, since Asia is the center of innovation and manufacturing for consumer electronics. ''Audio was struggling in Europe with the high costs there, and it was far from the market that was setting trends,'' says Oosterveld. ''The move gave our business a big boost.'' Partly, the right approach depends on the product. With the rise of a consumer culture around the world, brand marketers are finding they have to become much more responsive to local preferences. Coca-Cola Co. (KO), for example, used to control its products rigidly from headquarters in Atlanta. But managers have found that in some markets consumers thirst for more than just Coke, Diet Coke, or Sprite. So Coke has turned its local managers loose, too. The Turkish division, for example, is launching a pear-flavored drink, while the German operation is trying a berry-flavored Fanta. Such diversity is O.K. for soda pop, but overcustomizing big-ticket items may simply add too much cost. When General Electric Co.'s (GE) GE Medical Systems shifted global responsibilities to its product managers, it got a jolt. These executives, who were given worldwide responsibility for everything from product design to marketing, found that GE was localizing its medical imaging products far too much. Managers obsessed with local rivals were designing and manufacturing similar products for different markets--a costly and wasteful duplication of effort. ''The Japanese manager decided 'I want to make this product because I'm competing with Toshiba,''' says Yoshiaki Fujimori, president and CEO of GE Medical Systems Asia Ltd. CROSS-POLLINATION. But GE, like Coke, realized that local operations still had a lot to offer. So GE Medical surveyed its hospital customers worldwide, then used the information to design single global products. Last year, GE brought to market the fruits of its global effort--a new computed tomography scanner, reasonably priced at under $500,000. The company expects to sell 500 by yearend--a very fast launch. In Asia, sales are twice what the company expected. The real payoff for global managers comes when they are able to pounce on a great idea in one part of their empire and leverage it around the world. Managers at chipmaker ST Microelectronics' (STM) Malaysian plant recently figured out a way to radically compress the assembly time for certain chips, from five days to five hours. Now the company plans to transfer the technique to its Moroccan plant. Such cross-pollination was inconceivable just a decade ago, when manufacturing knowhow came from the center. Not now. ''It was natural to do this in Malaysia--it would have taken longer to do at R&D headquarters in Europe,'' says Pistorio. Exactly so. Global markets are increasingly jumping-off points for new approaches to the way a company operates. Scary? Of course. But it sure beats staying at home. By GAIL EDMONDSON With Kerry Capell in London, Pamela L. Moore in Greenwich, Conn., and Peter Burrows in San Mateo _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS The New Leadership The Boss in the Web Age TABLE: The Boss in the Web Age TABLE: Now and Then: How CEOs Will Change over the Next 20 Years See the World, Erase Its Borders TABLE: Going Global: The Growing Importance of Worldwide Markets Up from Bean Counter TABLE: Desired Skills An Executive Whose Time Has Gone From Gearhead to Grand High Pooh-Bah TABLE: Not Just Any CIO Mining a Company's Mother Lode of Talent TABLE: What Does a Knowledge Manager Do for a Living? Hey, Are You Listening to Me? TABLE: What It Will Take to Keep Me as a Customer Perspectives: Getting Rid of Guesswork Wanted: Eclectic Visionary with a Sense of Humor TABLE: A Resume for the 21st Century Write Your Own Title Essential Reading for Modern Managers ONLINE ORIGINAL: Q&A with McKinsey's Lowell Bryan ONLINE ORIGINAL: Q&A with INSEAD's Subramanian Rangan ONLINE ORIGINAL: Custom-Designing the Global Corporation INTERACT E-Mail to Business Week Online

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