Batuhan: Big Brother is watching (7

WE STARTED this series by observing that a large number of organizations these days are riding on the “global” bandwagon. More than in the past, when the concept meant simply “thinking global and acting local,” these organizations are tending to build structures with very long lines of management, with command and control and execution capabilities located all the way from their head offices – really thinking global, and acting even more global.

We also noted that these trends to exert even more control normally surface during tough times, in the hope that doing them would result in lower costs, greater efficiencies, and more knowledgeable organizations.

We then proceeded to learn from observations in the larger world – the macroeconomic sphere where these firms are located, and postulate that these moves to exert greater control are not too different from the socialist movements of years gone by, where governments have attempted to gain more control over what they perceive the be “inefficiencies” in their societies.

Unfortunately, like the socialist movements, many of the experiments in “total globalization” are not yielding very encouraging results, for fairly obvious reasons.

Managing long lines of control has seldom proven to be cost effective, both from the actual and opportunity costs points of view. Obviously, where the headquarters of these international organizations are located, tend to be more expensive locations, compared to the subsidiaries and affiliates they are trying to manage. New York, London and Zurich would clearly be more expensive cities to work in, than Manila, Bangkok or Jakarta. So having a large bureaucracy in the former, to manage affairs in the latter is clearly nonsensical, much less cost-effective. Moreover, such long-distance management often means longer reaction times, resulting in wasted opportunities and incurring normally avoidable costs.

And what about efficiencies?

Well, as costs go, so go efficiencies. In fact, the other way around, too.

Imagine a situation where a local crisis erupts, say an employee malfeasance requiring immediate but appropriate action. Normally, such instances would be dealt with locally, observing global and company-wide policy, but also respecting local law and practice. What happens if such decisions need to be elevated to higher levels of management? Quite possibly, reaction time will be longer, as decision-makers not too familiar with the situation struggle with the facts before attempting a decision?

Guess what else? Sometimes, due to lack of local knowledge, wrong decisions are made too, resulting in monetary penalties and worse, loss of reputation.

And what about the aim of quicker and more efficient transmission of organizational knowledge?

If knowledge meant “whatever headquarters thinks” then maybe. But in principle, it should mean the knowledge that is learned throughout the organization, from the head office all the way to the most remote subsidiary. So like the aims of lower costs and greater efficiencies, the answer has to be a no too. So if this new wave of globalization has many issues and shortcomings, what then is the ideal solution? How should governance in an international business be designed and executed?

(http://asbb-foreignexchange.blogspot.com & http://twitter.com/asbbatuhan)