New Strategy Alignment in Multinational Corporations

By Wunder, Thomas | Strategic Finance, November 2005 | Go to article overview

New Strategy Alignment in Multinational Corporations


Wunder, Thomas, Strategic Finance


"The whole is more than the sum of its parts." This famous Aristotle quote serves as a strategic imperative for multinational corporations (MNCs) because the corporate headquarters must ensure that its business units are collectively more successful than if they were acting individually. To create additional value through parenting advantage, a corporate headquarters must clearly define its role and strategic priorities to optimize the competitive advantage that lies within its global network of business units and people.

An MNC realizes parenting advantage by global scale and scope efficiencies, regional differences (e.g., raw material prices, customer/market requirements, labor costs, local knowledge), global risk diversification, or leveraging global learning and innovation within its international organization. If an MNC pursues all these objectives simultaneously, we talk about a transnational strategy.

Transnational strategies seldom fail for lack of ideas or strategic content but because of an unstructured or completely inflexible strategy process that doesn't:

* Consolidate strategic ideas,

* Synchronize or align strategies of different organizational units, and

* Give proper consideration to consensus and commitment among key decision makers.

Finally, strategy refinement and execution represents a balance between creativity and analysis. Analytical studies and evaluations should support the creative process. If the entire process is too unstructured, then the MNC runs the risk of missing essential considerations. But if the process is overly structured, then truly creative ideas are suppressed, thus compromising the core of successful strategies.

Today, the combination of the strategy map, balanced scorecard (BSC), and strategic action program (strap) has become a standard within the strategy process. Yet it's hard to find much information on applying these integrated concepts to the strategic alignment processes among strategic business units (SBUs), global functions or services, and regions within the MNC's often complex organizational structure. Henkel Corporation is a $13 billion German group in home care, cosmetics, and consumer/craftsman/industrial adhesives whose product portfolio includes Dial[R] soaps, Purex[R] laundry detergents, Loctite[R] super glues, Duck[R] tapes, and L.A. LOOKS hair gels. The group's adhesives division has successfully implemented and synchronized strategy maps, BSCs, and straps across the corporate level, three SBUs, supply chain, operations, R&D, international sales, and nearly 30 regions. Whereas strategy maps helped clarify, describe, and--most importantly--align strategic objectives of these different units, BSCs and straps ensured strategic control and execution. Henkel's annual employee survey clearly shows the degree of buy-in from the individual employee level. After the strategy map and BSC implementation, Henkel's adhesives division improved on the already excellent results of previous years with top marks in "organizational learning," "vision," "strategic direction and intent," and "agreement."

A German multinational medical product group also has applied strategy maps and the BSC to balance its highly autonomous international subsidiaries with strongly integrated and standardized global R&D, operations, and marketing activities. While strategic priorities of regional sales units are still focused on specific local customer, market, and legal issues, synchronizing global strategic priorities helped to reduce the cost of core products by 8% and increase productivity by 15% in the first year alone.

Now let's look at specific steps, principles, and lessons learned that are necessary for you to apply strategy maps, BSCs, and straps to a transnational strategy. I'll place special emphasis on the strategy rollout and strategic alignment in MNCs.

STRATEGY REFINEMENT

In addition to strategy maps and the BSC, factors like leadership, market dynamics, and, most importantly, the quality of the strategy itself play a decisive role in improving revenue, profit, and shareholder value. …

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