Developing a Global Mindset

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At the beginning of the 70’s five German software engineers, who were all IBM employees, developed a new standardized application software package. At that time IBM focused almost exclusively on developing and selling hardware, software being seen as a marginal add-on business. The five engineers decided to leave IBM and establish their own company under the name of SAP. The rest is history. SAP has become a global player, now ranked as the world’s fourth largest software company with annual sales well over $3 billion. Without SAP many notable European companies such as ICI, BMW, Volvo, Nokia, Hofmann-LaRoche and Lufthansa would not be able to manage their information systems. In the United States such blue chip companies as Coca-Cola, Burger King, P&G, DuPont, Intel and even mighty Microsoft rely on SAP software.

Why did IBM with its profound knowledge of the industry, its huge customer base and the vast resources at its disposal so grossly misjudge the market and leave this growth opportunity to a start-up company? The concept of mindset could provide an interesting answer. It is used here to describe a set of deeply held internal mental images and assumptions, which individuals develop through a continuous process of learning from experience. They exist in the subconscious determining how an individual perceives a specific situation, and his or her reaction to it. However, the concept of mindset applies not only to individuals, but also to organizations. Mindsets are the ‘origination point of all workplace behavior.’ An organizational mindset can be simply defined as the aggregated mindset of all of its members. Naturally, such a definition must take into account the interaction between people as well as the distribution of power within the organization. Interpersonal contacts influence an individual’s mindset and vice versa that person’s interactions shapes the mindset of others. Certain individuals, depending on their position in the organizational hierarchy, will have a stronger impact on the company’s mindset than others. In fact, in some extreme cases the personal mindset of the Chief Executive Officer becomes the single most important factor in shaping the organization’s mindset.

Essential to understanding the functioning of the mindset is the notion that individuals or organizations with their own particular experiences will most likely develop different mindsets and hence react differently to the same situation. It follows that the greater the diversity between two companies in the past, the more likely it is that they have developed different mindsets. That these differences matter is demonstrated by the example of IBM and SAP. The mindset of IBM led the company to focus on hardware and neglect the software market. On the other hand, the SAP founders operated with another mindset; they saw the great potential of their idea, left IBM and went ahead to establish their own business.

The IBM/SAP example powerfully illustrates how the mindset shapes the perception of management and thus determines which strategies to pursue and how to implement them. With respect to global management such a concept raises three fundamental questions: What is meant by global strategies? Second, what are the driving forces behind the global mindset? And finally, how to assess the impact of these forces and their impact on strategy development?

Global strategies

Contesting world markets and utilizing worldwide resources In recent years the concept of globalization has taken the business world by storm. Scores of articles in popular management journals as well as several books have urged companies to ‘go global’ in their strategies. In this context two slogans come immediately to mind: The many times quoted corporate mantra ‘Think global and act local’ and its opposite ‘Think local and act global’.

The Slogan "Think globally act locally" is frequently used to describe the managerial challenge faced by global marketers. It captures the need to think in global terms about a business or a market while, at the same time, doing some local tailoring to meet the particular requirements of the local customers.

‘Think global and act local’ stands for the development of a global business strategy, where management operates under the assumption that a powerful brand name with a standard product, package and advertising concept serve as a platform to conquer global markets. The starting point is a global strategy focusing on standard products, optimal global sourcing and the ability to react globally to competitors’ moves. This approach discourages diversity and puts a lot of emphasis on uniform strategies. On the other side is ‘Think local and act global’. This approach starts with the assumption that global expansion is best served by adaptation to local insights and initiatives in different markets around the world. Diversity is looked upon as a source of opportunity, whereas strategic cohesion plays a secondary role. Such a ‘bottom-up’ approach offers greater possibilities for revenue generation, particularly for companies wanting to grow rapidly abroad. However, it can require more investment in the infrastructure necessary to serve each market and, often, lacks strategic consistency.

Which approach is right or wrong does not in itself lead to a useful discussion. Recognizing the diversity of local markets and seeing them as a source of opportunity and strength, while at the same time pushing for strategic consistency across countries seems to be a conundrum global companies face today. It is now generally accepted that a global company must consider both local and global aspects. Michael Porter explains that ‘globalness’ is inevitably a matter of degree since the extent of strategic advantages that accrue to companies that compete internationally can vary a great deal from industry to industry. This observation leads to the conclusion that a company pursuing a global strategy should possess two capabilities:

1. The capability to enter any market in the world it chooses to compete in. The key issue is that the company constantly looks for market opportunities worldwide, processes information on a global basis and constitutes a constant threat to competitors even in countries/markets where it has not yet entered.
   
2. The capability to take advantage of its worldwide resources in any competitive situation it finds itself in, regardless of where that might be. For example, if a competitors switches to a low cost factory, it can do the same. Resources also include know-how, i.e., the global company must develop processes that maximize the transfer of knowledge between subsidiaries and between subsidiaries and head office.

Following this definition global strategies deal not only with global presence or are the preserve of large companies. It is also not important whether a company is operating on a worldwide basis or just in some countries. What is essential is that what a company does in one country impacts on what it does in others. This definition is used here to further analyze and discuss the meaning and implications of a global corporate mindset.

The corporation’s mindset and hence the way it deals with its environment plays an essential role in strategy development. There are several environmental forces which push for global business strategies coupled with a high degree of centralization and corporate control. However, other forces are supporting a local/national approach based on decentralization and local autonomy. These forces can be grouped into four categories: Top management’s view of the world, the company’s dominant organizational dimension, its strategic and administrative heritage and industry-specific forces driving or limiting globalization.

Top management’s view of the world: As mentioned earlier, the distribution of power in the organization, and senior management particularly, have an important influence on the corporate mindset. The emergence of a visionary leader can be a major catalyst in breaking-down existing geographic and competitive boundaries. Good examples are Michael Eisner of Walt Disney Company or Mark Wössner of Bertelsmann, who have both played a dominant role in propelling their companies to positions of global leadership. Whereas leaders with such a geocentric vision drive global business expansion, top management with a predominantly ethnocentric vision will concentrate on the home market and not be very interested in international growth.

Administrative heritage: It describes both the company’s tangible and intangible inheritance, and above all, recognizes that the company has a history which constrains its ability to adapt. With respect to tangible assets the heritage reflects the configuration of assets the company has acquired over the years. The administrative heritage also encompasses the intangible assets, such as the strategies that the company has pursued previously, its core competencies and corporate culture. The effort required to reconfigure key tangible and intangible elements of the business system can be very expensive and, thus, limit the company’s global strategic options. Many traditional multinationals have established free-standing subsidiaries with a high degree of autonomy and limited strategic coordination in all countries/markets, where they chose to compete. Based on such a history, it is for them much harder to develop a global mindset and related strategies compared to companies which operated in the past with a more centralized approach.

Structural solutions: The corporate mindset is also strongly influenced by the type of organizational structure the company has chosen. In a strongly product-oriented structure, management is more likely to think globally as the entire information infrastructure is geared towards collecting and processing product data on a worldwide basis. On the other hand, in an organization with a focus on countries/areas/regions, the mindset of managers tends to be more local. Here the information infrastructure is primarily oriented towards local and regional needs. It follows that in a matrix structure based on product as well as geographic dimensions, the mindset of management is expected to reflect both global and local perspectives.

Industry forces: There are a number of environmental forces pushing for a global approach, such as economies of scale, global sourcing and lower transportation and communication cost. Stronger global competition, the need to enter new and evolving markets and the globalization of important customers pull in the same direction. The trend towards a more homogeneous demand, particularly for products in fast moving consumer goods industries, and more uniform technical standards for many industrial products also favor global strategies. Another set of industry drivers, however, works in the opposite direction and calls for strategies with a high degree of local responsiveness. Here key drivers are strong local competitors in important markets, cultural differences forbidding the transfer of globally standardized concepts, for example in advertising, differing local customer tastes and special requirements of national distribution channels. Finally, dealing with protectionism, trade barriers and volatile exchange rates may force a national business approach. All these forces work together and create the conditions for shaping the global mindset of a company. However, the influence and intensity of individual forces is different from industry to industry and, sometimes even company to company.

Mindset management must deal with how to react to and influence the above outlined environmental forces. Corporate managers focusing on global competitive strategies tend to emphasize increased cross-national coordination and a more centralized, uniform strategy. For them, the proactive forces are key in developing strategies. Country managers, on the other side, are frequently favoring greater autonomy for their local units because of their superior understanding of local market and customer needs. Each category of managers will analyze data and facts in a different way and favor different strategic concepts and solutions depending on their individual mindsets. Both approaches can be seen as polar opposites, or a genuine paradox.

Two different situations seem possible:

1. If one perspective consistently wins at the expense of the other, the company may be successful for a certain period of time, but run into trouble at a later time. Its ability to learn and innovate will be seriously impaired as it will tend to search for ‘short-sighted’ solutions within a given framework.
   
   
2. What is desirable is maintaining a ‘creative tension’ between both perspectives. It is this tension which forces the organization to break away from current patterns of thinking and look for completely new solutions. This ability to move beyond the existing paradigm and in that sense further develop the mindset is probably one of the most important success factors for many of the established successful global players.
   

Utilizing creative tension in a constructive manner requires the development of a corporate vision as well as a fair decision-making process. The corporate vision is expected to provide general direction for all managers and employees where the company wishes to be in the future. Equally important, is setting up a generally understood and accepted fair decision process which must allow for sufficient opportunities to analyze and discuss both, global and local perspectives and their merits in view of specific strategic situations.

If the global mindset is the key factor in how a company perceives global business opportunities and what strategies it develops for capturing these opportunities, creating and supporting an environment where such a mindset can develop must be a critical issue for senior management. There seems to be a broad spectrum of possibilities to shape the global mindset including the composition of top management, a strong focus on vision and processes, encouraging network building, employee selection and career path planning.

Table-2: Managerial challenges in developing a global mindset

Composition of top management: The global mindset starts at the helm of the corporation. The composition of the top management team and the board of directors ought to reflect the diversity of markets, in which the company wants to compete. In terms of mindset, a multicultural board could help operating managers to facilitate reflection and learning through providing a broader perspective and specific knowledge about new trends and changes in the environment. The best example of a truly global top management team seems to be Adidas, the German-based sportswear company. Its executive board consists of two Americans, two Frenchmen, two

Germans, one Swiss, one Swede and one Australian. The Chief Executive is a Frenchman, Robert Louis-Dreyfus. Admittedly, Adidas is clearly the exception. Many other companies operating on a global scale still have a long way to go until the composition of their top management and boards reflects the importance and diversity of their worldwide operations.

Focusing on vision and processes: For decades it has been general management’s primary role to determine corporate strategy and the organization’s structure. However, the management of many global companies has changed from its historical concentration on the grand issues of strategy, structure and systems, to a focus on developing purpose and vision, processes and people.

The new management philosophy places less emphasis on following a carefully analyzed strategic plan than on developing and nurturing a strong corporate purpose and vision. Management’s intellectual understanding of the corporate vision, combined with direct responsibility for implementation, becomes a binding personal commitment. Middle management plays a key role in this process. Downsizing programs with the objective of reducing overhead by taking out entire middle management levels have left fewer managers in the companies to perform management tasks. Furthermore, the remaining managers are expected to take on new roles moving from administrators/controllers to business leaders/entrepreneurs. To facilitate this role change, companies must spend more time and effort involving middle management in devising vision and strategic plans. The process of drafting such statements and plans gives the individual manager an opportunity to make his or her contribution to the corporate agenda and, at the same time, creates a shared understanding and commitment of how to approach global business issues. Instead of traditional strategic planning in a separate corporate planning department Nestlé, for example, focuses on a combination of bottom-up and top-down planning approach involving markets, regions and strategic product groups. That process ensures that local managers play an important part in decisions to pursue a certain plan and the related vision. In line with this approach head office does not generally force local units to do something they do not believe in.

The new philosophy calls for development of the organization less through formal structure, and more through effective management processes. Today many global companies use a matrix structure. ABB has apparently succeeded in operating such a structure. Other companies, for example SAP, are about to implement a matrix organization. It seems that, for lack of a better solution, matrix structures will remain the backbone of many global companies. What is changing, however, is the focus. Instead of spending lots of time and resources on developing the ideal structural template to impose on the company from top down, managers now concentrate on the challenge of building up an appropriate set of employee attitudes and skills and linking them together with carefully developed processes and relationships. In this model a matrix of flexible perspectives and relationships in the manager’s mind allows him or her to individually judge and negotiate the trade-offs between different dimensions based on widely shared vision and strategy.

It is important to note, that this new management philosophy does not replace the hard management tools of strategy, structure and systems. Instead, the new and broader model of management supplements them with a focus on vision, processes and people.

Developing and coordinating networks: Globalization has also brought greater emphasis on corporate collaboration at the expense of the traditional corporate ethnocentrism, where a manager was in full control of a particular business or function. Collaboration refers not only to units within the company, but also extends to outside partners, e.g., suppliers, customers or research institutions. Global managers must now develop and coordinate networks which give them access to key resources on a worldwide basis. Network-building helps to replace nationally held views with a collective global mindset. Established global companies, such as, Unilever, Nestle or ABB, have developed a networking culture, in which middle managers from various parts of the organization are constantly put together in working, training or social situations. They range from staffing multicultural project teams, sophisticated career path systems encouraging international mobility to various training courses, internal conferences and company parties. Networking depends to a large degree on interaction and communication, which, today, is made much easier through new information and communication technologies. Nevertheless, personal contacts and interaction will remain essential and are the major vehicle for transferring ideas across borders. They are immensely useful in setting up ad hoc international project teams solving a problem or following a specific issue on a more permanent basis.

Employee selection: Recruiting from diverse sources worldwide supports the development of a global mindset. A multicultural top management, as described previously, might improve the company’s chances of recruiting and motivating high-potential candidates from various countries. Bright young Chinese or Indians, for example, might give the cold shoulder to companies that seem to be reserving all their top positions for whites. Many companies now seem to be placing more emphasis on hiring locals and putting them through intensive training programs. AT&T, for example, brings foreign-born managers to the United States for two-year training programs. Gillette runs local courses in 28 countries and then sends trainees to its headquarter in Boston or large subsidiaries in London and Singapore for 18 months. After completion of their training they are expected to take over local management positions.

Career path planning and international assignments: A career path in a global company must provide for recurring local and global assignments. Typically, a high-potential candidate will start in a specific local function, e.g., marketing or finance. A successful track record in the chosen functional area provides the candidate with sufficient credibility in the company and, equally important, self-confidence to take on more complex and demanding global tasks, usually as a team member where he or she gets hands-on knowledge of the workings of a global team. The ideal career pattern should alternate between local, global, local and again global assignments. For example, SmithKline Beecham follows a policy which requires candidates for senior management positions to have a "2+2+2" experience, i.e., hands-on experience in two businesses, in two functions and in two countries. With each new assignment these managers broaden their perspectives and establish informal networks of contact and relationships. Whereas international assignments in the past were primarily demand-driven to transfer know-how and solve specific problems, they are now much more learning-oriented and focus on giving the expatriate the opportunity to understand and benefit from cultural differences as well as to develop long-lasting networks and relationships. Exposure to all major functions, rotation through several businesses and different postings in various countries are critical in creating a global mindset, both for the individual manager and for the entire management group. In that sense, global human resource management is probably one of the most powerful medium- and long-term tools for shaping the global corporate mindset.

Depending on the characteristics of the corporate mindset and its global orientation, different development patterns will result. However, it should be borne in mind, that developing a global mindset is a lengthy and time-consuming process.

Characteristics of a strong corporate global mindset The globalization process demands new global visions, structures and processes, in which these visions are conceptualized, articulated and implemented by managers. Hence the global mindset is an essential requirement of global managers who are expected to lead their organizations into the future and orchestrate worldwide expansions programs. In this context it becomes interesting to contrast the features of a corporate mindset based on a strong global orientation with a more parochial mindset.

Management with a global mindset is approaching the world in particular ways. Individual managers working in foreign countries must not only meet the requirements of the work assignments, but also be able to adjust to unfamiliar attitudes and behaviors of the host country culture. How well individual managers and the management group as a whole deal with these challenges greatly influence’s the company’ development.

Established global players with a strong global mindset have created a self-perpetuating mechanism for expanding in worldwide markets. For them the global mindset works like a self-fulfilling prophesy, i.e. the more global the company’s mindset, the easier it becomes to support a global business approach in existing markets as well as to enter new markets and pursue a global strategy there. Such companies tend to follow a staircase growth model. Companies pursuing this approach, such as Nestlé, Unilever or SAP, are not zigzagging all over the place, but, instead, have developed a distinctive pattern or "footprint" in the form of a staircase or manageable steps. Each step earns money in its own right, each step up adds new skills to the company and better prepares it to open up and take advantage of new opportunities and each step moves it further into the direction of its vision. While few – if any – single steps are dramatic in themselves, linking them together as a staircase of sequential growth achieves results that definitely are. Such companies are able to:

1. Maximize the sales potential from existing customers and attract new customers without stepping into new product ranges.
   
   
2. Focus on innovation and offer improved and new products, services and value delivery systems.
   
   
3. Restructure the industry through implementing acquisitions and partnerships.
   
   
4. Expand into new geographic markets and competitive arenas.
   

Their global performance is strong, they have developed a group of global managers with the appropriate mindset. On the other hand, companies with a weak global mindset, tend to have a spotty global presence approach with perhaps a few strong and many weak or even marginal market positions in world markets. In the long-term their growth patterns tends to be discontinuous with sometimes inconsistent moves into unrelated fields and the resulting difficulties to transfer existing competencies. Often times performance in terms of growth and profitability fluctuate widely in such situations.

Table-3: Different Mindsets of Management

Developing a strong global corporate mindset is a lengthy process needing a consistent strategy over the long-term. Established global players, such as Nestlé, Unilever, IBM or Procter & Gamble, have evolved with the globalization of their businesses in their respective industries. Their management teams, strategies, structures and systems have developed gradually, by trial and error, in an incremental process over many years. For example, Unilever started its globalization process in the 30’s. The company has evolved mainly through a Darwinian system of keeping what is useful and rejecting what no longer worked to reach its current global leadership position in several consumer goods categories.

Today mindset management is a major challenge for many companies operating in world markets. There are roughly three categories of companies:

1. Established global players which must continue to build and expand their global mindset in order not to lose momentum and maintain one of their key success factors.
   
   
2. Traditional multinational companies must break with the past. For them the task is to change and refocus the mindset towards a global approach.
   
   
3. Established global players which must continue to build and expand their global mindset in order not to lose momentum and maintain one of their key success factors. Traditional multinational companies must break with the past. For them the task is to change and refocus the mindset towards a global approach.

What makes creating a global mindset for companies in the last two categories a particularly trying task is that they are forced to develop such a mindset in a shorter period of time, if they want to keep abreast of the ever-increasing pace of change. Here, smaller and medium-sized companies and the ‘domestic-only’ companies are obviously at a disadvantage. For them, hiring management personnel with a global background from the outside is an option. Nevertheless, they will have to redouble their efforts and make this a top priority issue.

As companies continue to expand globally they need managers who understand global business, operate effectively across cultural boundaries and balance strategic integration with responsiveness to local markets. Which global opportunities a company decides to pursue, and how it deals with the many challenges of a global business approach, depends critically on how good it is at interpreting and responding to the dynamic and diverse environments in which it operates. The management of such a company must regularly question its prevailing business model, i.e., it must be willing and able to challenge its own assumptions about important global business issues and learn to adapt these assumptions to the prevailing environment.

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