Andreas Birnik and Richard Moat assert that multinational firms need to develop an operating model at the activity level. By doing so, managers can identify inconsistencies and develop coherent operations across local subsidiaries, the corporate centre and outsourcing partners.Developing and maintaining an operating model can be a messy project for any multinational firm. The complexity is often daunting, and the available tools do not always help managers get the job done.
For more than 20 years, business schools have diligently trained students to use Christopher Bartlett and Sumantra Ghoshal’s integration-responsiveness (IR) grid to help determine whether multinational corporations (MNCs) should operate as transnational, global, multinational or international firms. Although these four archetypes provide conceptual clarity regarding the different options available to manage international operations, many multinationals fail to fit neatly into one of the four types. Furthermore, labelling a strategy as fitting one or the other of these archetypes does not necessarily provide a working operating model, as the IR grid is focused on various drivers for integration versus responsiveness rather than on clarifying who does what within the MNC.
As a result, we have noticed that managers, consultants and students who use the IR grid sometimes struggle to make the link to specific activities of a particular multinational firm. In fact, it is possible to agree on where a firm is on the IR grid today, and in which direction it should move forward, without having tackled many of the tough operational decisions that need to be made to develop a clear operating model. In short, use of the IR grid often leads to strategies that are simply too abstract and too generic to be of much use to MNC managers, apart from functioning as a useful starting point to stimulate strategy and operating model discussions. In this article we attempt to fill this gap and provide a tool to move beyond conceptual IR grid discussions toward crafting an actionable operating model for multinational firms.
In the Spring 2008 issue of Business Strategy Review, we discussed how to take an activity-based view in order to make strategy actionable. The strength of such a view is that strategy discussions become directly linked to activities that matter to the company. Without a link to the activity level, there is a clear risk that nothing will happen after the conclusion of the strategy process; strategy has then become all talk and little action. The strategy grid we proposed aims to capture key activities underpinning a firm’s business strategy in a simple one-page grid. Building on that thinking, we now present an approach to mapping a multinational’s operating model with a focus on whether strategy and execution occur at the local or central levels or are outsourced. Once again, the objective is to make sure that everyone in the company literally reads off the same one-pager to provide maximum clarity in a condensed format.
The proposed framework for mapping a localglobal operating model has emerged out of practice that evolved while the authors worked for Orange subsidiaries of France Telecom. It has subsequently been field-tested in consulting assignments with other mobile telephone operators and used for teaching global strategy to MBA students and executives at the National University of Singapore. Hence, the framework has proven useful across a wide variety of industries and contexts. A key strength is that it engages participants to explore their current operating model and to manually craft their future operating model. In contrast to the IR grid, our approach can be customized to meet specific requirements and constraints; a global operating model is surfaced that might not previously have been sufficiently articulated or understood within the firm.
The figure on the following page illustrates the IR grid together with the proposed operating model framework. The same activities have been mapped on both frameworks to provide clarity to the reader. While the IR grid is best used to explore the pressures for local responsiveness versus global integration on different activities, the key purpose of the operating model framework is to map which activities are owned at a central versus local level, and whether execution of the activities takes place centrally, locally or through outsourcing. For MNCs with a layered structure at headquarters, it would be easy to add a regional dimension to the grid between the central and local levels.
The different combinations in the operating model will be discussed below in relation to an example from mobile communications. While the approach often requires mapping of at least 30 activities to become sufficiently comprehensive, this discussion focuses on just a few activities to explain how the operating model can be used in practice. It is also important to recognize that, while strategy and execution are typically “owned” by a particular level within a multinational firm, it would be common for other levels to be involved in providing feedback on activities or vetting recommendations.