Management August 6, 2010, 2:06PM EST

Do Multinationals Really Understand Globalization?

(page 2 of 2)

Story Tools

Polycentric Organizations

The onus is on existing CEOs to redesign their organizations to leverage global diversity and the creative potential of Millennials (who will soon swell their employee base) in order to find innovative solutions for dealing with complexity in the postrecession global economy. To effectively compete and win in the emerging polycentric world, we believe, monolithic and ethnocentric multinationals must evolve into what we call polycentric organizations that reflect internally the growing external diversity and are able to learn and adapt continuously. Polycentric organizations not only tame but even capitalize on global complexity because of three noteworthy attributes:

1. They operate as a network. Polycentric organizations eschew hierarchical structures and silos —the death knell for developing empathy and harnessing diversity. Rather, they operate in a networked configuration, integrating creative talent and ideas from employees, suppliers, and customers across regions to meet the global demand for innovative products and services.

2. They are highly adaptive. Flexibility is key to learning dynamically and succeeding in extreme diversity. Polycentric organizations aren't wedded to a single European or U.S.-centric business model or organizational practice, but employ a diverse portfolio of strategies and approaches that allow them to quickly learn and adapt to new opportunities and threats in different regional markets.

3. They boast a global mindset. Polycentric organizations don't believe in a single "corporate culture," and allow multiple perspectives and value systems to co-exist within the same enterprise. They are also open to external ideas and actively collaborate with a rich network of partners. This diversity in thinking and action is reflected in the heterogeneity of their leadership team and how they make and execute their decisions.

Our research shows that a few visionary multinationals—some Western, some Eastern—have begun to embody and manifest the three key attributes of polycentric organizations.

For instance, both General Electric (GE) and Cisco Systems (CSCO) are de-Westernizing their firms and creating networked organizations by giving leaders in emerging markets global R&D remit and global profit-and-loss (P&L) responsibilities. John Chambers, Cisco's CEO, dispatched his top lieutenant, Wim Elfrink, to Bangalore to launch and run Cisco's Globalization Center East, which now works closely with the U.S.-based research and development teams to co-create affordable and sustainable solutions for both emerging and developed markets. Likewise, GE's CEO Jeffrey Immelt has made John Flannery, till recently the president and CEO for GE Capital in Asia, the head of GE's India operations, reporting directly to GE Vice-Chairman John Krenicki. For the first time in its history, GE now has a senior vice-president heading India, which from now on will be treated as one single, integrated business with its own P&L on par with any other global business unit of GE.

Globalization Strategies

Best Buy (BBY) has made adaptability the cornerstone of its globalization strategy. For example, Best Buy's astounding growth in China is due to the fact that it designed its local stores to be less transactional (as in the U.S.) and more experiential, giving Chinese customers plenty of space to browse and try out products before actually buying them.

Not to be undone by their Western rivals, next-gen multinationals from emerging markets like Tata Motors (TTM) and Lenovo (LNVGY) are diligently cultivating a global mindset by increasing the diversity of their leadership teams. For instance, Lenovo's chief marketing officer, chief operating officer, and many senior vice-presidents are all non-Chinese. Similarly, Ravi Kant, vice-chairman of Tata Motors, told us that the leadership team of recently acquired Jaguar Land Rover continues to make decisions and operate pretty much as before, and together with other Tata Motors units they are learning to operate with a global mindset. Finally, Suzlon Energy (SUEL:IN), India's wind energy pioneer, is tapping into globally distributed creativity thanks to its global innovation network with R&D hubs in Denmark, Germany, and the Netherlands.

The monocentric global economic order is rapidly being eclipsed by a polycentric world. Rather than keeping their enterprise locked into 20th century organizational structures and processes, CEOs of multinationals must leverage the Millennials to accelerate their firms' evolution into polycentric organizations that harness the diversity and capitalize on the complexity of the 21st century.

Navi Radjou is executive director of the Center for India & Global Business at Judge Business School at the University of Cambridge. Dr. Prasad Kaipa is a CEO coach and adviser; he has worked with more than 100 top executives and 30 Fortune 500 companies in the areas of leadership development and innovation.