New Business Models Needed?
Highlights by David Willden
Consumer markets are changing throughout the world. This creates a special challenge for multinational companies.The differences in consumer preferences, cultures, languages, regulations, sensitivities, etc., create complexities.
American and European companies have traditionally been the big players in the international consumer markets.These multinational companies have operated based on a hub and spoke model. This model may no longer be ideal, according to Paolo Pigorini, Ashok Divakaran, and Ariel Fleichman who published the article ”Managing in a Multipolar World” in Strategy+Business.
The authors poise the question, “does it make sense to have a headquarters any longer?” They state that “top management remains concentrated at headquarters, where executives lack a direct line of sight into and intuitive understanding of these new markets.” The important underlying question that multinational companies need to ask themselves is,how can we provide local autonomy and at the same time leverage the benefits and economies of standardization?
Matrix management is the operating model of many of the multinational companies today. While this model helps organizations to work across functions, it generally creates other problems such as prolonged decision making and high overhead costs.
The authors argue that flexibility is more important in the end, and decisions should be pushed down into the organization. To support decentralization effectively, there needs to be a clear understanding of who has what decision making rights. Over time, a decentralized approach, the authors state, “unshackles the organization, and a new management paradigm and set of behaviors take hold.”
It is important, however, that companies seeking to decentralized put in place new mechanism to manage risk and to create greater transparency.