Global/Multicultural
References Work Place Case
September 9, 1994
From computer giant International Business Machines Corp. to CS First Boston Inc., a major management trend is sweeping through the ranks of the world's multinationals. Where once it was the fad to "empower" local managers, now it's fashionable for headquarters executives to call the shots themselves - either like old-fashioned corporate dictators or as new global specialists with the clout to rule their particular niche of the business from Hong Kong to Houston.
"Foreign subsidiaries are no longer king," says Jagdish N. Sheth, a marketing professor at Emory University Business School in Atlanta, Ga. The shift in power breeds conflict, he adds. "Internationally you have an entrenched organization that is going to resist this change" in the power balance, he says.
And how. The latest example came from IBM Wednesday, when the Armonk, N.Y.-based multinational announced the abrupt departure of its top executive in Europe, IBM-Europe President and Chairman Hans-Olaf Henkel. Mr. Henkel denies he was forced out or clashed with IBM Chairman Louis V. Gerstner Jr, but others familiar with the company insist the two men didn't see eye to eye on Mr. Gerstner's plan for an international reorganization. The plan, announced in May, diminishes the power of IBM's long-established network of country managers around Europe and creates 14 global divisions run by specialists and set up to serve different categories of international industry.
However good such changes in the corporate balance of power ultimately may prove - and their benefit isn't yet established-one thing is clear: It's tough on the unlucky midlevel managers abroad.
When Fredy Dellis, a former Burger King official, became chief executive of Europe's biggest car-rental agency Europcar International SA, his first move was to get rid of the country-based fiefdoms that had sprung up. When he was finished, only two of the original nine country managers had survived.
"The market is forcing us to recognize that we have to gear the organization toward the customers' needs," says Mr. Dellis. "Their needs are less and less geographic, and more and more very specific segment needs that cut across borders and also across oceans."
One victim of the trend: Hans-Joerg Rudloff, a former manager at CS First Boston, the investment banking arm of Swiss financial group CS Holding AG. Until last year, CS First Boston operated as a trio of linked but independent investment-banking units in New York, London and Tokyo. Then in June 1993, it reorganized along product lines, with its main investment banking functions run from New York in a restructuring that effectively downgraded the London and Tokyo operations to branches of New York
The corporate benefit: The investment bank has been able to improve coordination of its international business, taking advantage of growing cross-border capital flows.
But Mr. Rudloff, the bank's former head in London, was transferred to Zurich. He was given a place on CS Holding's board, in recognition of his achievement in building up the London investment banking unit, but he says he didn't feel at home in a global, functional system. He quit the group earlier this year and has just announced he is setting up his own investment banking business. A number of other senior executives also left the bank's London office, citing dissatisfaction with their loss of autonomy to managers in New York.
Not everybody is convinced that changes in the corporate power balance are always good. In a recent study, the Conference Board, a big-business research group, found that, indeed, the roles of foreign subsidiary managers are shrinking, especially in marketing and production. Moreover, it reported that 45% of the 82 foreign-subsidiary managers it interviewed across the globe said they had conflicts with their head offices over marketing and customer relations
It cited the case of a foreign manager in one U. S. pharmaceutical company's French subsidiary who went from finding and marketing local product licenses within France to having to seek group product executives' approval back at corporate headquarters in the U.S. for even small, routine proposals. Often, no decision was made at all, according to the Conference Board report The frustrated manager soon quit the U.S. concern - where he had spent his entire career.
But the shifts in corporate power are the latest in a long series of fads and trends in multinational management over the years.
European multinationals, says Harvard Business School Prof. Christopher Bartlett, pioneered the idea of far-flung, autonomous foreign subsidiaries - a business analogue of their countries' old colonial empires, where distance and slow communications gave local governors much clout. After World War II, U. S. multinationals such as IBM cast a new corporate mold: Foreign subsidiaries had some autonomy when deciding how to handle their local markets, but they drew on the technological or marketing expertise of corporate headquarters. More recently, Japan's rising multinationals organized themselves with an all-powerful Tokyo headquarters dictating to foreign representative offices. For the past decade or more, the three types of multinationals have been bumping into-and influencing-one another across the globe.
One result, Prof. Bartlett and other management specialists say, is "the transnational," with an often-complex mixture of local and international power centers. The aim of such organizations, says Roger Camrass, a senior official at Arthur D. Little Inc.'s European management-consulting practice, is to combine the economies of scale of a global behemoth with the flexibility and market savvy of a local company.
Some companies say changes in the corporate power balance needn't always prompt costly resignations. Two years ago, Minnesota Mining & Manufacturing Co. moved some key functions from its individual country subsidiaries in Europe to Europe-wide business centers and units. The country subsidiaries weren't abolished because they "house the bricks, the mortar and the people," says John Muilenburg, a human-resources vice president responsible for international affairs at the big St. Paul, Minn.-based manufacturer. And "we have a need to maintain a local presence."
But Mr. Muilenburg says that so far there hasn't been an increase in turnover among foreign-subsidiary managers affected by the organizational shift. One possible explanation: 3M is putting more local nationals into top positions of the country subsidiaries in Europe.
"It's not all a bed of roses," concedes the personnel executive. "But with the changing environment and intensified competition, we have to find ways to do business differently."
-Nicholas Bray and Janet Guyon contributed to this article.