Description
in this assi, need you to work for our product on this part below and we will take our product to Mexico, please in the fles all what you need and read carfally General Business and International StrategyExtending from the Executive Summary, explain in more detail the following:Strategic fit between the new product in the host country and Clorox’s strategic mission, vision, values, and strategic goals.Mode of Entry:exporting, licensing, strategic alliance, joint venture, acquisition, existing or new wholly-owned subsidiary.Industry analysis (anticipated industry and category growth, Porter’s 5 Forces, strategic groups)The competition—local and global Competitive strategy selected (i.e., which one of Porter’s generic strategies and why)International strategy envisioned [multidomestic, global, or transnational (These are similar to P. Ghemawat’s concepts of adaptation, aggregation, and arbitrage.)]
Unformatted Attachment Preview
Brazil
China
Russia
South Africa
India
Mexico
Turkey
Indonesia
South Korea
–
Target market age 25-44 because we believe
we can build brand loyalty with this age
group
30.9
–
45+ may already have established loyalty
441M
31.5
–
1.4B
421M
29.8
Average 30.38% of population is in our
target age range
South Africa
60M
19.2M
32.1
–
Mexico
130M
39.5M
30.4
South Korea
52M
14.9M
28.6
Total market size was given a weight of 10%
because it is important to enter a sizeable
market but with no interest or market for
our product it will be difficult
Indonesia
279M
82M
29.5
Turkey
84M
25.3M
30.3
–
India and China significantly larger markets
in terms of population
Country
Total
population
(2023)
Population
25-44
(2023)
% of total
population
Brazil
218M
68M
India
1.4B
China
Country
Score
(/8)
Weight
Weighted
score
Brazil
5
.10
0.5
India
8
.10
0.8
China
7
.10
0.7
South Africa
2
.10
0.2
Mexico
4
.10
0.4
Indonesia
6
.10
0.6
South Korea
1
.10
0.1
Turkey
3
.10
0.3
Country
2024 Household Cleaner
market projection (USD)
2024 per person revenue
projection (USD)
Projected CAGR from
2024-2028 (%)
Brazil
1.12B
5.14
4.19
India
0.86B
0.59
4.36
China
2.58B
1.80
3.05
South Africa
0.30B
4.95
4.99
Mexico
0.77B
5.97
3.39
Indonesia
1.43B
5.12
3.80
South Korea
0.56B
10.77
2.99
Turkey
0.13B
1.48
17.92
Average
0.97B
4.48
5.59
Country
Score
(/8)
Weight
Weighted
score
Brazil
7.5
0.30
2.25
India
2.5
0.30
.75
China
4.5
0.30
1.35
South Africa
4.5
0.30
1.35
Mexico
6
0.30
1.80
Indonesia
7.5
0.30
2.25
South Korea
2.5
0.30
.75
Turkey
1
0.30
0.30
Country
South Korea
China
Mexico
Turkey
Brazil
South Africa
Indonesia
India
Population
51,815,810
1,425,887,337
127,504,125
85,341,241
215,313,498
59,893,885
275,501,339
1,417,173,173
GDP
$1.665 T
$17.963 T
$1.414 T
$906 B
$1.920 T
$406 B
$1.319 T
$3.385 T
GDP
growth
2.56%
2.99%
3.06%
5.57%
2.9%
2.04%
5.31%
7%
GDP per
capita
32138
12598
11091
10616
8918
6776
4788
2389
World share
of GDP
1.66%
17.86%
1.41%
0.90%
1.91%
0.40%
1.31%
3.37%
Weighted
Country
Score Weight
Score
China
8
0.2
1.6
India
7
0.2
1.4
South Korea 5.5
0.2
1.1
Mexico
5.5
0.2
1.1
Turkey
4
0.2
0.8
Brazil
3
0.2
0.6
Indonesia
2
0.2
0.4
South Africa
1
0.2
0.2
EPI
Country Score
South
Korea
46.9
South
Africa
37.2
Green Future Index
Green Living World Sustainable Development
(World Rankings) 2022
Rankings 2023
Goals Rankings 2023
10
14
78.06
31
62
64.00
Turkey
26.3
69
45
70.78
Mexico
45.5
54
68
69.71
Brazil
43.6
34
46
73.69
Indonesia
28.2
70
54
70.16
India
18.9
42
50
63.45
China
28.4
26
21
72.01
Country
Score
Weight
Weighted
Score
South Korea
8
0.25
2
China
7
0.25
1.75
Brazil
6
0.25
1.5
South Africa
4.5
0.25
1.125
Turkey
4.5
0.25
1.125
Mexico
3
0.25
0.75
Indonesia
2
0.25
0.5
India
1
0.25
0.25
Country
Operations
Score (/8)
Weight
Weighted score
Brazil
N/A
2
0.15
0.30
India
N/A
2
0.15
0.30
China
Sales office
6
0.15
0.90
South Africa
Sales office
6
0.15
0.90
Mexico
Plant, Sales office
8
0.15
1.20
South Korea
Joint venture, Sales office
8
0.15
1.20
Indonesia
N/A
2
0.15
0.30
Turkey
N/A
2
0.15
0.30
Country
Target
market
size
Household
cleaners
market size
GDP
Ecofriendly
Clorox
presence
Total score Rank
Brazil
0.50
2.25
0.60
1.50
0.30
5.15
3
India
0.80
0.75
1.40
0.25
0.30
3.5
6
China
0.70
1.35
1.60
1.75
0.90
6.3
1
South
Africa
0.20
1.35
0.20
1.125
0.90
3.775
5
Mexico
0.40
1.80
1.10
0.75
1.20
5.25
2
Indonesia
0.60
2.25
0.40
0.50
1.20
4.95
4
South
Korea
0.10
0.75
1.10
2.0
0.30
2.25
8
Turkey
0.30
0.30
0.80
1.125
0.30
2.825
7
China
Mexico
Brazil
Among the highest scores in all
categories
Large market size and GDP
Clorox already has a sales office
in China
Consistent moderate scores
across all factors
Clorox already has a plant and
sales office in Mexico
Ranking high in household
cleaner market size and ecofriendly behavior
Clorox currently does not have an
operational presence in Brazil
Based on our findings,
Mexico is our number one
option for market entry
Your International Business Plan
Major Team Assignment #4: WGB 650
After a promising domestic launch, Corporate has given the “go-ahead” for each team to take its new product
to an emerging economy in support of Clorox’s strategic agenda. From your three “short-list” candidate
countries, now you are defending your entry into just one. The challenge will be showing us how you will be
successful there.
In your international new product launch, risk and adaptation issues are crucial to identify and strategically
address.
You will present a three-year plan for your international product launch into the emerging company of your
choice. You will be submitting the Plan to Clorox’s senior management in the form of a Business Plan
Review. The assignment is expected to be a comprehensive, compelling, and well-written report—aimed at
convincing management that an investment in your new product is worthwhile.
Formatting Guidelines
•
Your written paper should not exceed fifteen single-spaced pages. Appendices are excluded
from this page restriction; you may include as many appendices as are useful, but they
should be referenced or referred to in the body of the report.
•
Remember that an Executive Summary is not an introduction; it should summarize the entire
scope, assumptions, and findings that are more fully developed in the body of the report.
Your Executive Summary should not exceed three pages in length. Typically, it would be
the last section of your business plan to be written.
•
Teams should include a Table of Contents to help Clorox’s experts quickly find the areas of
the report they are most interested in reviewing.
•
A Reference Page is required; also use APA to cite sources within the report, including
charts.
•
All charts, text, and appendices should be readable—translation use 12 point type as your
guide.
•
The written paper should be engaging to read; feel free to include charts/graphics and high
impact formatting to enhance your written business plan.
•
The Excel worksheets showing your financial statements and projections should be
submitted as a separate document. For emphasis, you may want to cite or refer to your
Excel worksheets and calculations.
The components of the international business should include:
I.
An Executive Summary. Speak as general managers, identifying strategic issues in the
international marketplace and the functional areas of your operation that will affect the
successful launch of your new product. Doing business in another country is never as easy as it
sounds, what circumstances do you need to deal with and overcome in order to prosper? And
how will you measure your success?
➢ Include a brief discussion of the major product adaptations your team made to maximize
consumer demand—given the host country’s culture, infrastructure, and economy.
1
➢ Succinctly recap the rationale for choosing country X vs. others available to you, including a
summary of the key opportunities and challenges you foresee.
➢ State your business launch strategy: timing, entry strategy, and competitive strategy.
➢ In a table/chart, include the highlights of your revenue, profit, cash flow, and market share
projections as well as a few of the significant financial calculations (e.g., investment
requested, entity valuation and underlying assumptions, IRR) for the new business.
Before or after the table/chart, include a compelling rationale of the financial and strategic
benefits that Clorox would obtain for the investment you are requesting.
II.
General Business and International Strategy
Extending from the Executive Summary, explain in more detail the following:
▪
Strategic fit between the new product in the host country and Clorox’s strategic mission,
vision, values, and strategic goals.
▪
Mode of Entry: exporting, licensing, strategic alliance, joint venture, acquisition, existing or
new wholly-owned subsidiary.
▪
Industry analysis (anticipated industry and category growth, Porter’s 5 Forces, strategic
groups)
▪
The competition—local and global
▪
Competitive strategy selected (i.e., which one of Porter’s generic strategies and why)
▪
International strategy envisioned [multidomestic, global, or transnational (These are similar
to P. Ghemawat’s concepts of adaptation, aggregation, and arbitrage.)]
III.
Marketing Plan
The detailed requirements for the marketing component of the business plan will be described in
a separate document from Prof. Ravi Dhingra. In many respects, it resembles your domestic new
product marketing plan for Year 1. Carefully read and follow his instructions.
IV.
Production and Supply Chain Management Decisions
Product and supply chain decisions need to be described in the global business plan. Include
commentary on the following:
Production
•
Where will your product be manufactured? Justify your answer.
•
Do you plan to produce by yourself or have a partner company manufacture your
product?
•
How much labor cost do you expect to save?
•
How much space do you need for manufacturing your product?
•
What key supplies must be imported from the home country and/or other countries?
2
What can be obtained from the country where the product is produced?
•
How will import of raw materials to the production country impact cost? How will local
procurement(s) of raw materials impact cost?
•
Would you need to ship your finished product from your home or another country to the
target country? If yes, what will be the cross-border transportation cost?
•
Are there tariffs and/or other taxes/restrictions imposed by the target or third country?
Supply Chain
V.
•
What are the risks you will likely face in the supply chain for your product? What do you
plan to do to mitigate those risks?
•
How will you distribute in the target country and what will be your distribution costs?
•
How much space do you need for your logistic operations (storage, shipping, receiving,
and warehousing)?
Human Resources (HR) Plan
Align the organizational and management structure with the business and international strategy
selected. Will your management staffing approach be: ethnocentric, polycentric, global, or
Regio centric? Try to determine if Clorox already is operating in the host country and, if so,
what HR structures and policies exist.
Given the organizational and national culture, identify the major HR/talent management
considerations for recruiting and retaining talent. [Exclude factory workers, as their
compensation would be included as part of production costs.]
▪
▪
▪
▪
▪
Recruitment and selection of management staff
Method of compensation and performance management
The optimal management/leadership philosophy
The optimal organizational structure
Leveraging Clorox’s human resources from the home or host country
Organizational chart
Develop an organization chart that shows the different positions (managers, staff, and
salespeople) needed to conduct your strategic and functional plans. Indicate where in the
country the position will be located and how many people you plan to hire. Avoid creating too
many managerial or staff positions.
Compensation plan
Design a compensation plan for the management personnel to be employed in the business unit.
Research and determine the salary levels and the benefits of the managers and staff. If you plan
to send U.S. expatriates to the host country, recognize that the compensation package of an U.S.
expatriate usually includes allowances (e.g., relocation, housing, hardship, travel to the U. S., et
cetera) and those salary and benefit packages can end up being three times as costly as what the
position would cost a firm if filled by a host-country hire. Therefore, use expatriates cautiously
and wisely.
3
VI.
Financial Plan and Projections and Benchmarks for Success
What is the general outlook for the next three years: 2025, 2026, and 2027, assuming a stub
period of 6-months as you ramp up (from 6/1/24 to 12/31/24).
i. What are the expectations for continuous improvement in cost of goods sold
(COGS) over the plan period, including the impact of new technology, process
reengineering, and quality initiatives?
ii. What are the expectations for continuous improvement in selling, general, and
administrative (SG&A) over the plan period due to organizational learning?
In other words, translate your functional plans for marketing, organization, human resources,
production, `and supply chain into measurable financial targets. You are required to complete a
full set of financial statements (income statement, balance sheet, and cash flow), along with
detailed support schedules for the start-up period and the above years. Your start-up period will
be focused on building inventory for your product launch in January of 2025.
Within this section, provide about a one to two-page analysis of the results of the financial
statements, explaining the reasons for the results or changes.
Remember to complete the valuation Excel and graphs. Incorporate the most significant
financial results into the Executive Summary.
Prof. Patrick Lapera will provide you with specific guidelines for your financial statements and
schedules. Note that the financial statements will be prepared in the foreign currency of your
host country and translated into U.S. dollars using the convenience method. You are expected to
make a minimal PP&E or other asset investment, representing 30% of the total investment
amount you are requesting. Instructions on how to present the highlights of your financial
analyses and projections in the discussion of your financial plan will be provided in Prof.
Lapera’s lectures and Excel templates.
You are also required to specify your hedging strategy and incorporate the costs of hedging into
the financial statements.
Grading of Global Business Plan by Component
Executive Summary
Strategy Decisions
Marketing Plan
Production & Supply Chain Decisions
Human Resources (HR) Plan
Financial Projections
Writing Quality [strategic integration and adherence to
10%
20%
20%
10%
10%
20%
10%
business writing conventions]
4
With the globalization of production
as well as markets, you need to evaluate
your international strategy. Here’s a
framework to help you think through your
options. by Pankaj Ghemawat
W
Managing
Dif ferences
Ian Whadcock
The Central Challenge of Global Strategy
hbr.org | March 2007 | Harvard Business Review 59
YEL MAG CYAN BLACK
HEN IT COMES TO GLOBAL STRATEGY, most business leaders and academics make two assumptions: first, that the central challenge is to strike
the right balance between economies of scale
and responsiveness to local conditions, and second, that
the more emphasis companies place on scale economies in
their worldwide operations, the more global their strategies
will be.
These assumptions are problematic. The main goal of any
global strategy must be to manage the large differences that
Managing Differences
arise at borders, whether those borders are defined geographically or otherwise. (Strategies of standardization and
those of local responsiveness are both conceivably valid responses to that challenge – both, in other words, are global
strategies.) Moreover, assuming that the principal tension
in global strategy is between scale economies and local responsiveness encourages companies to ignore another functional response to the challenge of cross-border integration:
arbitrage. Some companies are finding large opportunities
for value creation in exploiting, rather than simply adjusting
to or overcoming, the differences they encounter at the borders of their various markets. As a result, we increasingly see
value chains spanning multiple countries. IBM’s CEO, Sam
Palmisano, noted in a recent Foreign Affairs article that an estimated 60,000 manufacturing plants were built by foreign
firms in China alone between 2000 and 2003. And trade in
IT-enabled services – with India accounting for more than
half of IT and business-process offshoring in 2005 – is finally
starting to have a measurable effect on international trade
in services overall.
In this article, I present a new framework for approaching global integration that gets around the problems outlined above. I call it the AAA Triangle. The three A’s stand
for the three distinct types of global strategy. Adaptation
seeks to boost revenues and market share by maximizing a
firm’s local relevance. One extreme example is simply creating local units in each national market that do a pretty good
job of carrying out all the steps in the supply chain; many
companies use this strategy as they start expanding beyond
their home markets. Aggregation attempts to deliver economies of scale by creating regional or sometimes global operations; it involves standardizing the product or service offering and grouping together the development and production
processes. Arbitrage is the exploitation of differences between national or regional markets, often by locating separate parts of the supply chain in different places – for instance, call centers in India, factories in China, and retail
shops in Western Europe.
Because most border-crossing enterprises will draw from
all three A’s to some extent, the framework can be used to develop a summary scorecard indicating how well the company
is globalizing. However, because of the significant tensions
within and among the approaches, it’s not enough to tick off
Pankaj Ghemawat is the Anselmo Rubiralta Professor of Global Strategy at IESE Business School in Barcelona, Spain, and the Jaime and
Josefina Chua Tiampo Professor of Business Administration at Harvard Business School in Boston. He is the author of “Regional Strategies for Global Leadership” (HBR December 2005) and the forthcoming book Redefining Global Strategy: Crossing Borders in a World
Where Differences Still Matter, which will be published in September
2007 by Harvard Business School Press. For a supplemental list of
publications on globalization and strategy, go to www.hbr.org and
click on the link to this article.
60 Harvard Business Review | March 2007 | hbr.org
the boxes corresponding to all three. Strategic choice requires some degree of prioritization – and the framework
can help with that as well.
Understanding the AAA Triangle
Underlying the AAA Triangle is the premise that companies
growing their businesses outside the home market must
choose one or more of three basic strategic options: adaptation, aggregation, and arbitrage. These types of strategy differ in a number of important ways, as summarized in the
exhibit “What Are Your Globalization Options?”
The three A’s are associated with different organizational types. If a company is emphasizing adaptation, it probably has a country-centered organization. If aggregation is
the primary objective, cross-border groupings of various
sorts – global business units or product divisions, regional
structures, global accounts, and so on – make sense. An emphasis on arbitrage is often best pursued by a vertical, or
functional, organization that pays explicit attention to the
balancing of supply and demand within and across organizational boundaries. Clearly, not all three modes of organizing can take precedence in one organization at the same
time. And although some approaches to corporate organization (such as the matrix) can combine elements of more
than one pure mode, they carry costs in terms of managerial
complexity.
Most companies will emphasize different A’s at different
points in their evolution as global enterprises, and some
will run through all three. IBM is a case in point. (This characterization of IBM and those of the firms that follow are informed by interviews with the CEOs and other executives.)
For most of its history, IBM pursued an adaptation strategy,
serving overseas markets by setting up a mini-IBM in each
target country. Every one of these companies performed a
largely complete set of activities (apart from R&D and resource allocation) and adapted to local differences as necessary. In the 1980s and 1990s, dissatisfaction with the extent to
which country-by-country adaptation curtailed opportunities to gain international scale economies led to the overlay
of a regional structure on the mini-IBMs. IBM aggregated
the countries into regions in order to improve coordination
and thus generate more scale economies at the regional and
global levels. More recently, however, IBM has also begun to
exploit differences across countries. The most visible signs of
this new emphasis on arbitrage (not a term the company’s
leadership uses) are IBM’s efforts to exploit wage differentials by increasing the number of employees in India from
9,000 in 2004 to 43,000 by mid-2006 and by planning for
massive additional growth. Most of these employees are in
IBM Global Services, the part of the company that is growing fastest but has the lowest margins – which they are supposed to help improve, presumably by reducing costs rather
than raising prices.
What Are Your Globalization Options?
ADAPTATION
AGGREGATION
ARBITRAGE
Competitive Advantage
Why should we
globalize at all?
To achieve local relevance through
national focus while exploiting
some economies of scale
To achieve scale and scope
economies through international
standardization
To achieve absolute economies through international
specialization
Configuration
Where should we locate
operations overseas?
Mainly in foreign countries that are similar to the home base, to limit
the effects of cultural, administrative, geographic, and economic distance
In a more diverse set of
countries, to exploit some
elements of distance
Coordination
How should we connect
international operations?
By country, with emphasis on
By business, region, or customer,
By function, with emphasis
achieving local presence within
borders
with emphasis on horizontal
relationships for cross-border
economies of scale
on vertical relationships,
even across organizational
boundaries
Controls
What types of extremes
should we watch for?
Excessive variety or complexity
Excessive standardization, with
emphasis on scale
Narrowing spreads
Change Blockers
Whom should we
watch out for internally?
Entrenched country chiefs
All-powerful unit, regional, or
account heads
Heads of key functions
Corporate Diplomacy
How should we
approach corporate
diplomacy?
Address issues of concern, but
proceed with discretion, given
the emphasis on cultivating local
presence
Avoid the appearance of homogenization or hegemonism (especially
for U.S. companies); be sensitive
to any backlash
Address the exploitation or
displacement of suppliers,
channels, or intermediaries,
which are potentially most
prone to political disruption
Corporate Strategy
Scope selection
Variation
Decentralization
Partitioning
Modularization
Flexibility
Partnership
Recombination
Innovation
Regions and other country groupings
Product or business
Function
Platform
Competence
Client industry
Cultural (country-of-origin
effects)
What strategic levers
do we have?
Procter & Gamble started out like IBM, with mini-P&Gs
that tried to fit into local markets, but it has evolved differently. The company’s global business units now sell through
market development organizations that are aggregated up to
the regional level. CEO A.G. Lafley explains that while P&G
remains willing to adapt to important markets, it ultimately
Administrative (taxes, regulations, security)
Geographic (distance, climate
differences)
Economic (differences in
prices, resources, knowledge)
aims to beat competitors – country-centered multinationals
as well as local companies – through aggregation. He also
makes it clear that arbitrage is important to P&G (mostly
through outsourcing) but takes a backseat to both adaptation and aggregation: “If it touches the customer, we don’t
outsource it.” One obvious reason is that the scope for labor
hbr.org | March 2007 | Harvard Business Review 61
YEL MAG CYAN BLACK
When managers first hear about the broad strategies (adaptation, aggregation, and arbitrage) that make up
the AAA Triangle framework for globalization, their most common response by far is “Let’s do all three.” But it’s
not that simple. A close look at the three strategies reveals the differences – and tensions – among them.
Business leaders must figure out which elements will meet their companies’ needs and prioritize accordingly.
Managing Differences
arbitrage in the fast-moving consumer goods industry may
be increasing but is still much less substantial overall than in,
say, IT services. As these examples show, industries vary in terms
of the headroom they offer for each of the three A strategies.
Even within the same industry, firms can differ sharply in
their global strategic profiles. For a paired example that takes
us beyond behemoths from advanced countries, consider
two of the leading IT services companies that develop software in India: Tata Consultancy Services, or TCS, and Cognizant Technology Solutions. TCS, the largest such firm,
started exporting software services from India more than 30
years ago and has long stressed arbitrage. Over the past four
years, though, I have closely watched and even been involved
in its development of a network delivery model to aggregate
within and across regions. Cognizant, the fourth largest, also
started out with arbitrage and still considers that to be its
main strategy but has begun to invest more heavily in adaptation to achieve local presence in the U.S. market in particular. (Although the company is headquartered in the United
States, most of its software development centers and employees are in India.)
The AAA Triangle allows managers to see which of the
three strategies – or which combination – is likely to afford
the most leverage for their companies or in their industries
overall. Expense items from businesses’ income statements
provide rough-and-ready proxies for the importance of each
of the three A’s. Companies that do a lot of advertising will
need to adapt to the local market. Those that do a lot of
R&D may want to aggregate to improve economies of scale,
since many R&D outlays are fixed costs. For firms whose operations are labor intensive, arbitrage will be of particular
concern because labor costs vary greatly from country to
country. By calculating these three types of expenses as percentages of sales, a company can get a picture of how intensely it is pursuing each course. Those that score in the top
decile of companies along any of the three dimensions – advertising intensity, R&D intensity, or labor intensity – should
be on alert. (See the exhibit “The AAA Triangle” for more detail on the framework.)
How do the companies I’ve already mentioned look when
their expenditures are mapped on the AAA Triangle? At Procter & Gamble, businesses tend to cluster in the top quartile
for advertising intensity, indicating the appropriateness of
an adaptation strategy. TCS, Cognizant, and IBM Global Services are distinguished by their labor intensity, indicating arbitrage potential. But IBM Systems ranks significantly higher
in R&D intensity than in labor intensity and, by implication,
has greater potential for aggregation than for arbitrage.
ADAPTATION
Advertising-to-Sales
The AAA Triangle
The AAA Triangle serves as a kind of strategy map for managers. The percentage of
sales spent on advertising indicates how
important adaptation is likely to be for the
company; the percentage spent on R&D is
a proxy for the importance of aggregation;
and the percentage spent on labor helps
gauge the importance of arbitrage. Managers should pay attention to any scores above
the median because, most likely, those are
areas that merit strategic focus. Scores
above the 90th percentile may be perilous
to ignore.
AGGREGATION
R&D-to-Sales
10%
10%
8%
8%
6%
6%
4%
4%
2%
2%
0
90th percentile
Median
20%
40%
60%
80%
100%
ARBITRAGE
Labor-to-Sales
Median and top-decile scores are based on U.S. manufacturing data from Compustat’s Global Vantage database and the U.S. Census Bureau. Since the ratios
of advertising and R&D to sales rarely exceed 10%, those are given a maximum value of 10% in the chart.
62 Harvard Business Review | March 2007 | hbr.org
Although many companies will (and should) follow a strategy that involves the focused pursuit of just one of the
three A’s, some leading-edge companies – IBM, P&G, TCS,
and Cognizant among them – are attempting to perform
two A’s particularly well. Success in “AA strategies” takes two
forms. In some cases, a company wins because it actually
beats competitors along both dimensions at once. More commonly, however, a company wins because it manages the
tensions between two A’s better than its competitors do.
The pursuit of AA strategies requires considerable organizational and material innovation. Companies must do more
than just allocate resources and monitor national operations
from headquarters. They need to deploy a broad array of integrative devices, ranging from the hard (for instance, structures and systems) to the soft (for instance, style and socialization). Let’s look at some examples.
Adaptation and aggregation. As I noted above, Procter &
Gamble started out with an adaptation strategy. Halting attempts at aggregation across Europe, in particular, led to
a drawn-out, function-by-function installation of a matrix
structure throughout the 1980s, but the matrix proved unwieldy. So in 1999, the new CEO, Durk Jager, announced the
reorganization mentioned earlier, whereby global business
units (GBUs) retained ultimate profit responsibility but
were complemented by geographic market development
organizations (MDOs) that actually ran the sales force
(shared across GBUs) and went to market.
The result? All hell broke loose in multiple areas, including at the key GBU/MDO interfaces. Jager departed after less
than a year. Under his successor, Lafley, P&G has enjoyed
much more success, with an approach that strikes more of
a balance between adaptation and aggregation and allows
room for differences across general business units and markets. Thus, its pharmaceuticals division, with distinct distribution channels, has been left out of the MDO structure; in
emerging markets, where market development challenges
loom large, profit responsibility continues to be vested with
country managers. Also important are the company’s decision grids, which are devised after months of negotiation.
These define protocols for how different decisions are to be
made, and by whom – the general business units or the
market development organizations – while still generally reserving responsibility for profits (and the right to make decisions not covered by the grids) for the GBUs. Common IT systems help with integration as well. This structure is animated
by an elaborate cycle of reviews at multiple levels.
Such structures and systems are supplemented with other,
softer tools, which promote mutual understanding and collaboration. Thus, the GBUs’ regional headquarters are often
collocated with the headquarters of regional MDOs. Promotion to the director level or beyond generally requires experience on both the GBU and the MDO sides of the house.
The implied crisscrossing of career paths reinforces the
message that people within the two realms are equal citizens. As another safeguard against the MDOs’ feeling marginalized by a lack of profit responsibility, P&G created a
structure – initially anchored by the vice chairman of global
operations, Robert McDonald–to focus on their perspectives
and concerns.
Aggregation and arbitrage. In contrast to Procter & Gamble, TCS is targeting a balance between aggregation and arbitrage. To obtain the benefits of aggregation without losing
its traditional arbitrage-based competitive advantage, it has
placed great emphasis on its global network delivery model,
which aims to build a coherent delivery structure that consists of three kinds of software development centers:
• The global centers serve large customers and have
breadth and depth of skill, very high scales, and mature coding and quality control processes. These centers are located
in India, but some are under development in China, where
TCS was the first Indian software firm to set up shop.
• The regional centers (such as those in Uruguay, Brazil,
and Hungary) have medium scales, select capabilities, and an
emphasis on addressing language and cultural challenges.
These centers offer some arbitrage economies, although not
yet as sizable as those created by the global centers in India.
• The nearshore centers (such as those in Boston and
Phoenix) have small scales and focus on building customer
comfort through proximity.
In addition to helping improve TCS’s economics in a number of ways, a coherent global delivery structure also seems
to hold potential for significant international revenue gains.
For example, in September 2005, TCS announced the signing
of a five-year, multinational contract with the Dutch bank
ABN AMRO that’s expected to generate more than €200 million. IBM
