The Failure of Success When Internationalizing

Wal-Mart in Korea … Best Buy in China … Tesco in the U.S. …  The list of companies that have tried to expand internationally and have failed is long indeed, as my students learn in my classes in International Business.  Of course, there are companies that have also been successful as they internationalized, such as IBM, BMW, Toyota, Mastercard, and UPS, to name just a few.

My students are initially very surprised that companies that have been so successful in their home markets could stumble when expanding overseas.  When I ask them why these companies have failed, the two most common reasons they give are that they did not do sufficient market research, and that they failed to adapt to the needs of consumers in the market.

But I push them to dig deeper, to look at some of the root causes.  I challenge them on why they would assume that these companies did not do any market research.  And was the failure to adapt simply a blindness to differences, or a willing choice they made?  After all, these companies have relatively deep pockets, and would want to be sure that their investments would pay off.  Wouldn’t they want to do their homework and due diligence before plunging into a new market?

In interviews with executives, various discussions with students (many of whom work for global companies, some at fairly senior levels), and from research on the topic, I believe that the reasons for failure come down to four underlying causes.

Number one is a “readiness” factor.  Cavusgil et al. (2012) have explained this very clearly when they write that management needs to “… determine the degree to which they have the motivation, resources, and skills necessary to successfully engage in international business.”  For many companies, considering the possibility of expanding into an international market and increasing revenues is reason enough for them.  Unfortunately, these companies get ahead of themselves and forge ahead without laying the proper groundwork.  Part of this groundwork includes the four questions that Cavusgil et al. suggest firms should ask themselves:

1.     What do we hope to gain from international business?

2.     Is international expansion consistent with other firm goals, now or in the future?

3.     What demands will internalization place on firm resources?

4.     What is the basis of the firm’s competitive advantage?

For example, Target is a successful company that has only recently started to expand internationally.  It did this by acquiring the Canadian retail chain Zellers.  Target seems to be very cautious in its approach.  Even though many Canadians are familiar with Target and its logo, Target will continue to use the Zellers name as it learns how to operate their business model in a different country.  Contrast this with Best Buy, which opened its largest-ever store in China and then quickly added eight more stores.  Then, in 2011, it pulled the plug on all nine stores, realizing that its business model did not work in the Chinese market. 

Cavusgil’s questions will not only help companies to determine if internalization is right for them at this time, but also help them to develop a game plan, with specific actions and timelines, to improve their readiness.  For example, a company might want to hire an executive who has had extensive experience in the industry and in that country, and who is familiar with that country’s regulatory requirements.  It helps if that executive has some established relationships with government officials, since such relationship-building is very important in certain markets. 

Number two is a failure to consider criteria other than ROI in the decision on whether, where, when and how to internalization.  A company’s financial analysts may crunch the numbers and come up with very favorable returns.  Companies can get giddy with dreams of tremendous returns that they sometimes fail to probe and question the assumptions on which these numbers are based. 

For example, have country, political, and cultural risks been considered seriously?  If intellectual property rights are not strongly adhered to in the country, what is the risk for the company and what risk mitigation strategies should be put in place?  What is the competitive environment like in the country?  Are there strong local competitors as well as global competitors already in the marketplace?  Companies face many short-term pressures, and the allure of expanding into new markets can be compelling.  But ROI and other financial indicators alone should not be the sole criteria for entering a market.  In the M&A research, for example, data clearly show that the majority of mergers and acquisitions fail to meet targeted returns on investment.

Number three is not effectively addressing the right balance between standardization and localization.   In the global companies I have worked for, this tension plays out in many different ways.  In one consumer products company, for example, some general managers in different subsidiary operations insisted on having the final say in such decisions as the color on the packages, the suppliers to use for their printing needs, and even the logo of the company for their countries. 

When Allan Mullaly became CEO of Ford, he was surprised to learn that Ford cars had 27 different car platforms.  Was every one of them necessary?  Ford now has reduced the number of platforms to 14, with nine of them accounting for 87% of Ford’s global sales (Detroit Free Press, February 20, 2013).  The more that a company customizes and localizes its value chain and its product offerings, the higher the costs – although others would argue that the profits will also increase because the products will appeal better to local consumers.  Nonetheless, there are trade-offs here that need to be considered, and companies need to be clear on their strategic priorities. 

Companies need to set clear boundaries on those aspects of their value chain, products and brand image that are “core” to their strategy.  They need to make sure that these boundaries are clearly communicated internally, and that these aspects are standardized globally with some centralized control.  For Ford, these would include their global platforms.  For Nike, it would include their brand image.

And number four is a company mindset that past success should predict future success, especially past success with the company’s business model.  In his terrific book, “What Got You Here Won’t Get You There,” Marshall Goldsmith describes many of his executive clients who refuse to change their behavior since their style, dysfunctional as it may be at present, is what made them successful to begin with.  I believe a parallel may be found with companies that have become so successful that they believe that replicating their business model will work everywhere.  There are companies of course that have succeeded with such replication, and arguably there are certain industries (e.g., consumer electronics) where replication is a safe approach to globalizing.  But for many companies and industries, it always pays to question the validity of a replication strategy.

Based on the above, here are four additional questions that companies should answer before internationalizing:

1.  Is your company “ready” to go global?

2.    Does your definition of success include factors other than just ROI?

3.     Have you defined what aspects of your value chain, products and brand are core and what can be      adapted?

4.     Is your company sure that a replication strategy will work?

Cavusgil, S. et al.  International Business.  (2012).  Upper Saddle River, New Jersey: Prentice Hall.

Goldsmith, M.  What Got You Here Won’t Get You There.  (2007).  New York:  Hyperion.

Adopting a "Reverse Innovation" Attitude

Adopting a “Reverse Innovation” Attitude

Professor Vijay Gavindarajan’s concept of reverse innovation – developing ideas in an emerging market and coaxing them to flow uphill to Western markets - is a powerful one.   If you are familiar with his work, you will know that he cites many examples, especially at GE, where products such as a low-cost ECG machine were originally developed in emerging markets like India and yet have become innovations sold in developed countries as well.

As he points out, reverse innovation “refers as much to a state of mind as to best practice.”   While he does not spell out what this state of mind is, let me offer some thoughts on what global managers can do to adopt an attitude of reverse innovation.

If you work for a for-profit or a not-for-profit firm these days, you will more than likely have interactions with people from different parts of the world.  Like myself, some of you will have gone overseas on short-term or long-term assignments.  Many of you are also members or leaders of global teams.

Before reverse innovation can even be considered as an organizational practice, a global company should examine its approach and overall relationship towards its overseas offices and locations.  In my experience, reverse innovation can best thrive when a company views its overseas offices as:

1.     Important markets or locations which could potentially make a contribution to the company

2.     A source for potentially good ideas, best practices, or specific areas of expertise of value to the company

3.     An integrated part of the company where these offices are not treated as “second-class citizens.”

It does not thrive when companies see their overseas arms simply as an additional source of profits or cost advantage, or as a resource to be exploited.  In other words, adopting a stance similar to that of the colonizers (e.g., Great Britain) with their possessions in the early days (e.g., India) will not help a company become truly global and take advantage of reverse innovation.

Without these three conditions in place at the organizational level, it will be very difficult for a global manager to encourage and practice reverse innovation at the individual level.  Now if you happen to be with a company where these organizational conditions are present, then you are fortunate.  But having these organizational conditions is not enough.  Here is what you can do to take advantage of your opportunity and adapt a reverse innovation attitude.

First, become more self-aware.  Learning more about yourself, your strengths and weaknesses and where you can improve, will give you a dash of humility plus a degree of self-confidence.  Since we are all subject to biases, especially about ourselves, you will need to have the courage to ask others what you can to do improve.  Asking for feedback is necessary for you to increase your self-awareness.  Of course others may have their own biases so be sure to ask people who you can trust, who know you well, and whom you believe are relatively objective in their observations.  They can be someone with whom you have a significant relationship, a close friend, a co-worker or a mentor.  When you do this, be sure you have a specific behavior in mind and not just ask a general question on how you can improve.  You might want to ask, for example, how you can be a better listener.  Try using Marshall Goldsmith’s feed forward tool or discussing the results of your 360-degree feedback with a trusted friend or co-worker.

Second, develop respect for different cultures and business practices.  In my MBA course on Cross-Cultural Management, many of my students who have never worked overseas are surprised at what they assume to be common management techniques and practices is not that common in other countries.  Asking subordinates who speak up and express their opinion, or to disagree with you if necessary, is something not typically done in societies with higher “power distance” than our own.  Recognizing that these practices are different from ours, and not necessarily inferior, is a difficult concept to grasp initially for some of my students, but is necessary for a successful global manager.  A good rule of thumb to follow is that when you see a management practice in another culture that is different, try describing what the practice is first and suspend judgment by evaluating it right away.

Third, improve your listening skills.  In my work with executives over the years, one common weakness I see in many of them is their lack of listening skills.  For those of you managing globally, this means not only paying attention to content but to context as well.  First of all, you will meet many very smart managers who may struggle at times with their English, and who may not understand some of the idioms and expressions we use.  Do not assume that there is a correlation between intelligence and the ability to speak English.  I have seen too many instances of American executives who are so impressed by how well some non-U.S. executives in their overseas locations speak English that they want to immediately place them on a fast promotion track.  Second, many countries, especially in Asia and Latin America, belong to what Edward Hall calls “high context” cultures.  This means listening to what is said “between the lines,” and how something is said becomes very important.  Effective salespersons know how to do this well.  You should, too.  Listen carefully to what your global counterparts are saying, paying attention to what they are saying (e.g., how direct or indirect their message is) as well as how they are saying it (e.g., body language, tone of voice).

The road to becoming a truly global manager with a reverse innovation attitude starts with these fundamentals.

Goldsmith, M.  (2002).  Try Feedforward Instead of Feedback.  Adapted from Leader to Leader Magazine (www:marshallgoldsmithlibrary.com/cim/articles).

Gonvindarajan, V.  et al.  (2012).  Reverse Innovation.  Boston:  Harvard Business Review Press.

Hall, E.  (1992).  Beyond Culture.  New York:  Anchor Books.

Stephen Covey and Global Management Principles Versus Practices

When I was a young manager working for a Fortune 500 company, I signed up for a workshop that Stephen Covey was conducting at a conference center outside New York City.  I had just read his book, “The Seven Habits of Highly Effective People,” and wanted to learn more by listening to him live.  He was a bit what I expected an author of such a book to be  - sincere, straightforward, passionate about his beliefs.

When I learned that Mr. Covey passed away recently, I went back to this book that had such a profound influence on my professional life to see whether there were other insights I may have missed the first time around.  Over the years, I have always remembered to “begin with the end in mind” and to focus on the “important, and not necessarily the urgent” (although I have not always successfully followed this advice).

But something else struck me as I skimmed through the book.  In my classes in OB, I have interesting discussions with my students on what good OB practices are, and whether they can be applied to different companies in different industries.  One of the best articles on the subject is Professor Pfeffer’s “Putting People First for Organizational Success.”  Here, he lays out seven OB practices that he claims have been proven to result in productivity and high performance.  They include selective hiring, employment security and self-managed teams.  We have good debates in my classes as to whether these practices can apply to all organizations regardless of their situation, or to organizations in different parts of the world.

   

The “a-ha” for me was Covey’s insight that “Principles are not practices.   A practice is a specific activity or action.  A practice that works in one circumstance will not necessarily work in another … While practices are situationally specific, principles are deep, fundamental truths that have universal application.”

There are many so-called “best” OB practices today that seem to work well for certain companies at certain times.  All you have to do is read the practices that Fortune describes in its annual Best Places to Work survey.  Who does not know about Google’s free food, W. L. Gore’s self-managing teams, and GE’s Work-Out Programs, to name a few?

But Covey is right. Practices, including OB practices, are situationally specific.  Depending on the company’s strategy, its organizational goals, its cultural context, and its industry (among other things), these practices may or may not work.

But are there OB principles with universal application that lead to high performance and high commitment?  Based on my experience having worked for several different corporations, consulted with many others, having learned from some great minds in the field of OB, and having worked in many different countries, I would say there are at least five that I believe are universal.  First is to treat employees fairly and with respect.  Whether it is a state-owned Chinese firm or a private enterprise in Brazil, organizations that uphold this principle will produce a higher level of commitment from employees than those that do not.   The specific practices on how this principle is implemented will vary by culture.  In Western cultures, treating employees with respect might mean listening to their ideas.  In Asian cultures, treating employees with respect might mean paying great attention to making sure employees do not lose face. 

Second is to create a positive, motivating environment.  In Western cultures, this might mean such things as managers providing encouragement to employees, having an open-door policy, and conducting meetings where employees can express their opinions.  In Asian cultures, this might mean joining employees after work for karaoke, making sure they understand the history of the company, or even providing uniforms so employees can identify better with their company.

Third is to build self-confidence in employees.  Berating employees may instill fear and compliance but more than likely will build resentment and mere compliance, if at that.  We know from research that there is strong evidence of an “expectation effect” between teachers and students, as well as between managers and subordinates.  Sports trainers and coaches spend considerable amounts of time working on the mental aspects of the sport with their pupils, even with world-class athletes.  In Western cultures, building self-confidence might mean giving some autonomy to employees or providing them with a challenging assignment.   In Asian cultures, this might mean offering them special titles or giving a team special recognition.

Fourth is to set high standards and expectations.   There is strong evidence from the research on goal setting that setting moderately difficult goals can be motivating.  GE popularized the practice of “stretch” goals.  In Western cultures, setting high standards might involve meeting with subordinates to discuss goals and pointing to the alignment of these goals with department and company objectives.    In Asian cultures, this might involve having a senior leader of the company speaking to employees about the importance of meeting stretch goals for the good of the team and for the good of the company.

Fifth is to build collaboration and teamwork.  While talented individuals will continue to come up with inventions and innovations, breakthroughs today are more often than not the product of teams of individuals working together.  The image of the lone inventor or scientist toiling in isolation is somewhat exaggerated anyway; even Thomas Edison had a small team who worked with him to invent the light bulb.  In Western cultures, building collaboration and teamwork might mean focusing on the right incentives and rewards to reinforce the right behaviors.  In Asian cultures, this might mean focusing on team-building to create a strong sense of group and company identity for employees, or on redesigning the work to build interdependence.

These are five principles that I believe represent good OB, are backed by years of research and that are universal.  However, let us also keep in mind, as Covey has wisely said, that principles are not practices.  How these principles are applied and implemented will certainly vary and in this global world, Covey’s advice is worth heeding.

Leading Global Virtual Teams

When I ask the students in my MBA classes how many of them belong to cross-functional teams, between half to three quarters typically raise their hands.  And when I ask them if they also belong to global teams (where members are from different cultures and are in different geographic locations), most of them keep their hands raised. 

Many of you working with global companies today know that these global virtual teams are becoming more and more common.  The reasons for the increasing frequency of these teams are not surprising.  First of all, many organizations have recognized for some time that their talent pool is not restricted to their headquarters location, and so using the best and the brightest, no matter where they are located, makes sense.  Second, many organizational solutions require cross-functional as well as cross-border collaboration, and restricting team membership to only one function or to those coming from only a single country (typically where its headquarters office is located) is not a smart strategy.

          

What do we know about the effectiveness of these teams?  Unfortunately, there is not a lot of research on this subject.  We can start with what I consider to be three of the best references on the subject of teams - Lencioni’s The Five Dysfunctions of a Team, Hackman’s Leading Teams, and Katzenbach and Smith’s The Discipline of Teams.  At the risk of oversimplification, here are four key success factors that they and others say about what makes a team work effectively:  the team has to have a compelling vision or goal, members need to trust one another, their skills (whether these are technical or social skills) need to be complementary, and a great deal of attention needs to be paid to team processes.

In my opinion, these same key success factors can be applied to global virtual teams, although how to make these factors work effectively becomes more complex and more challenging with these types of teams.  Some of the challenges are obvious:  differences in geography, time, language, diversity, culture, size and technology.  Others, such as gaining the participation and commitment of team members, are subtler.  To add to the challenges, many global team leaders are managing teams whose members do not report directly to them.  Therefore, these team leaders have to learn to exercise “influence without authority.”

According to research conducted by Govindarajan and Gupta (2001), 82% of global teams they surveyed said that they fell short of their intended goals – they were not successful as teams.  Govindarajan and Gupta identified five challenges of global virtual teams:

1. Cultivating trust
2. Overcoming communication barriers
3. Aligning goals of individual team members
4. Ensuring that the team possesses necessary knowledge and skills
5. Obtaining clarity regarding team objectives

How can the four success factors I mentioned earlier help you as a global team leader address each of these challenges?

Cultivating trust.  In many parts of the world, building relationships takes precedence over immediately working on the task requirements.  Therefore, it is important for a team leader to make sure that at the very least global team members know one another on a personal level.  Introduce team-building activities early on to make sure that members are comfortable working with each other and that they understand each other’s background, experience and what they bring to the table.  It is simply not enough to assume that because you all work for the same company, you have common interests or shared goals. Although it may be difficult to have face-to-face meetings due to time or resource constraints, this is a worthwhile investment.  Pay attention to group processes; for example, make sure that you establish protocols on how the team will communicate, how they will interact with each other during meetings, and other “ground rules” on how the team will function (e.g., who is responsible for informing team members who may not be present for a meeting, how disagreements and conflicts will be resolved).

Overcoming communication barriers.  While most of your team members may speak English, their level of confidence with speaking English will vary.  To overcome this, you may need to use translators from time to time.  Make sure that agenda items are communicated ahead of time, and minutes of meetings are circulated after the meeting.  Allow some time towards the end of meetings to encourage members to make comments if some have not done so.  Develop clear operating procedures for your team meetings (e.g., agendas will be circulated three days in advance, identify the purpose for bringing up a topic – for discussion, recommendation, or making a decision).  And follow up individually with team members who do not seem to be participating as actively in team meetings and probe carefully for possible reasons.

Aligning goals of individual team members.  Do not assume that team members are all committed to the team goal.  Make sure you understand the work priorities and performance goals of each of your team members.  Watch for symptoms of non-alignment, e.g., members not showing up for meetings, not volunteering for tasks, not delivering on their commitments.  Work to make sure that you link team goals with members’ performance objectives.  This may mean having discussions with team members’ bosses to make sure that they are aware of the commitments required by global team membership and that they are fully supportive of their subordinates’ participation.  This also means that you have to engage and excite the team with a compelling vision.  This does not have to be some lofty abstract ideal, but has to be something that challenges and inspires, that taps into a business issue that members all agree is important for the organization to address.  Have you linked the business impact of your team’s goals to the organization’s success?

Ensuring that the team possesses necessary knowledge and skills.  While team members may have the necessary technical skills, does the team have the right balance of cognitive and interpersonal styles?  In my experience with global teams, the better ones not only make sure skills are complementary, but that all members have opportunities to build their knowledge and skill base, not only in business and technical aspects, but also in two important areas:  understanding and dealing with cultural differences, and building collaboration skills.

Obtaining clarity regarding team objectives.  Is everyone on the team clear on what success looks like for the team?  Are metrics well defined and are they agreed to by everyone?  If you sense a lack of clarity, or lack of agreement, tackle this by bringing in the team sponsor (the person or group that you as team leader are accountable to for the team’s progress) to help clarify goals.  Make sure that you define expectations and deliverables with the sponsor and communicate these to the team.  The team sponsor can also be used to give some recognition to the team as it makes progress.  Is everyone clear on his or her roles and responsibilities (especially for those who may still have their regular “day job” in addition to being a team member)? Apply a tool called RACI (which stands for Responsible, Accountable, Consulted, and Informed) to help clarify roles and responsibilities especially around decision-making.

Being aware of these challenges and some ways to address them should make the job of a global team leader a bit easier, and ultimately more rewarding and fulfilling for everyone on the team.

Govindarajan, V. and Gupta, A (2001).  Building an effective global business team.  MIT Sloan Management Review, 42(4), 65-71. 

Are Diversity Initiatives Worthless?

Recently, Jack Welch, former CEO of GE, made some controversial comments at a Women in the Economy conference sponsored by the Wall Street Journal.  What did he say that upset at least some of the female attendees?  First, he said that working hard and showing how your skills can benefit the company are the keys to getting ahead.  In effect, he said, “over deliver … performance is it.”    Unlike what some may believe, this is not what upset them; who could argue against this, in the first place?

He then criticized mentorship programs and other diversity initiatives for women, referring to them as “victims’ units.”  He even mentioned some female executives who approached him while he was at GE, telling him that they refused to participate in these kinds of programs.  By inference, Welch would probably also argue against any kind of diversity initiatives for African-Americans or minorities.

We all know the numbers.  Of the Fortune 500 companies, only 3% have a female CEO today.  A survey of 60 major companies by McKinsey shows women occupying 53% of entry-level positions, 40% of manager positions, and only 19% of C-suite jobs.

In my experience, Welch represents the mindset of a generation of white male executives (mostly in their sixties), some of who still believe that there is true meritocracy in corporations, that there are no barriers to anyone getting ahead other than your own internal ambitions, and that regardless of the culture or work environment, those who are successful find ways to make it to the top.  In this Darwinian world, there is no need to do anything special or different for diverse groups.  You just have to figure it all out, since “the cream rises to the top.”  For these executives (I know; I have worked with quite a few of them in my career), diversity initiatives, affinity groups, and support networks for women (and by extension, African-Americans) are unnecessary and even unfair.  And some women and African-Americans agree with them!  Taken to an extreme, what Welch implies is that managers should have no responsibility in developing others.  Just leave them alone and let them figure it out for themselves. 

Contrary to what Welch implies, there continue to be cultural, systemic, and organizational barriers to success in today’s work place.  The evidence is overwhelming, and I don’t need to rehash this in this column.  Here are a couple of points I would like to offer based on what we know from the science and practice of Industrial-Organizational Psychology. 

First, we know from research and from schema theory that we have filters and expectations about individuals that tend to bias our perception of them.  And one of these pervasive biases is a “similar-to-me” bias.  We tend to like those who are like us, and tend to react favorably to those with whom we perceive to have similarities.  No question that this has been a barrier to females getting ahead.  Fortunately, through diversity programs and the track record of many outstanding women in the work force, I believe that individuals in corporations today are more “enlightened” than they have been in the past.  But the biases still exist.  In Europe during the eighties, many orchestras changed their practice from having judges watch and evaluate potential orchestra members audition in front of them to having them audition “blind.”  That is to say, the applicants performed behind a curtain so that the judges could not tell whether the applicants were male or female.  This simple practice led to a dramatic increase in the proportion of female orchestra members.

Second, while very few if any corporate executives would argue against evaluating people other than for their performance (as Welch suggests), how that performance is viewed can be subject to bias.  Here, attribution theory can shed much light.  Attribution theory states that we as managers not only evaluate performance, but also try to determine the causes of that performance.  Is the reason for their performance based on ability, effort, luck, or some other factor?  A manager’s evaluation of the potential of an individual may depend therefore not just on his or her performance but also ona the manager’s answer to this question of what caused the performance.

Welch implies that it is all about performance.  But wait.  Isn’t this the same Jack Welch who in GE introduced the famous 2 X 2 matrix where managers were evaluated not just on their performance (on the one axis), but also on their values (the other axis), and that a manager who performs well but who does not have the right values should be “terminated?”

Unfortunately, our biases creep into our evaluation of the causes of performance.  There is a lot of evidence, for example, that male managers tend to attribute the performance of their female subordinates more to luck than to ability or effort.

So what are the implications to individuals and to corporations of the Welch assertions?  First, for individuals, there is no question that your performance is your “foot in the door,” your ticket for punching your way to the dance.  This will mean making some personal sacrifices and trade-offs, and working some long hours to build a successful track record if your ambition is to be a successful executive.  But I don’t believe that this means rejecting whatever support and help you can take advantage of, whether within your company or outside the company.  For example, many of us need to build our networks (as Reid Hoffman calls it, your personal board of directors) and if your company offers programs to help you with this, there is no reason not to take advantage of them.  Believe me, the Welches of the world (white males in their sixties and seventies), when they were rising stars, had their own network and support system.  It may not have been formalized, but they still took advantage of them.  And many of these groups excluded women, whether intentional or not.

For managers, this means that your responsibility as a manager includes developing and coaching others.  Catalyst just published some recent research demonstrating that a majority of high potentials received developmental support and are in turn developing others in their organizations.  This “culture of talent development” is critical for companies today, and yet Welch, of all people, would seem to suggest it is not necessary, or even desirable.      

For corporations, continuing to provide mentoring programs, affinity groups, and similar initiatives – and more broadly implementing diversity initiatives – will provide them with a competitive advantage.  After all, the business case for diversity in attracting, developing and retaining talent is well-established, notwithstanding the opinion of Mr. Welch.