Smart IT helps balance centralized management with local control.
by Harry Ghuman, November 2011
Managers of global companies struggle to deliver the right amount of integration to business units around the world. What data should the finance department in London, England, share with the finance department in New Delhi, India? Should the design teams of Europe and Asia access the same information? Differing viewpoints often depend on where an executive sits in the company.
Faced with mounting cost and performance pressures, the executives at headquarters might be tempted to standardize and integrate all business processes for very tight control over the operating units. The executives at the operating units, however, may argue for more local control over business processes such as sales, finance, and product development.
The balance between tight integration and distributed control is a delicate one, and valid arguments can be made for either. Fortunately, with the right approach, companies can take advantage of solutions that provide for both sides. There are three key factors to consider:
1. Responsiveness. An integrated system and centralized processes offer corporate headquarters more visibility into the global business units. But too much integration and automated decisions may lead to algorithmic responses, causing panic as the systems respond too quickly to transient conditions. This is evidenced in the global financial crisis and in supply chain disruptions caused by natural disasters. Additionally, the centralized systems may not fully meet local needs and could slow down performance.
2. Flexibility. In companies where customer preferences, product offerings, or sales processes differ widely in different markets, it is best to retain local control on those critical capabilities. It is vital to maintain a global brand and adequate control while accommodating local preferences.
3. Cost. Standardized processes and systems reduce the costs shared among operating units. The Association for Manufacturing Excellence found that centralized manufacturing organizations have 10 percent lower costs than companies with decentralized functions. Leadership may start with a centralized vision with cost reduction objectives. Eventually, however, they will not achieve those benefits if they overcommit to local changes in the standard system.
Developing a Strategic Vision
Modern enterprise systems allow the core business processes to maintain local flexibility and control while providing instant visibility and financial control at the headquarters level, all while cutting costs. For instance, the European operations of a large Japanese automotive company established this balance with a global business intelligence solution—80 percent of which was standard and 20 percent local. Overall, the total cost of ownership of this solution was 27 percent lower, and the solution was much more responsive than the previous, locally controlled patchwork. To achieve these results, executives need to have a clear vision of and plan for integration.
The choice of what needs to be centralized should be strategically considered and managed at the highest executive levels. By creating an integration roadmap, leadership can clearly see which information and processes can be shared and which are better left to control at the local level. For instance, the finance function might be better suited to full integration so executives at headquarters can have visibility into the financial workings and status of all business units. However, it might be best to localize elements of customer relationship management or product development, so that individual business units can account for the preferences of their local markets.
A well-thought-out strategy for integration can also help identify possible changes to the current business environment, such as events that affect the supply chain or local economies. By being ready for these events, executives can plan their integrations in a way that will minimize disruption on a large scale. For instance, integration roadmaps can account for service disruptions in certain areas due to known climate or political instability issues. When an event occurs, the roadmap can detail a backup plan that will decrease the effect on the rest of the business.
With the right plan and technology solution, management can strike the ideal balance between centralized control and local flexibility.
Harry Ghuman is senior vice president and leader of the global Industry Strategy and Insight team at Oracle.