Navigating the Evolution: The Transformative Journey of Global Organizations

Maybe it was because I have worked in large global organizations (Xerox, American Express, GE) or maybe since my father worked for a British company (Brooke Bond) in India and I had a chance to witness his journey while growing up, I have always been intrigued by global organizations- how they are structured, how are they led, and how they manage their strategies and outcomes.

In this blog, I draw the evolution of global organizations and project how they will change in the post-pandemic era. Studying the nature and characteristics of global organizational evolution is pivotal for comprehending how multinational/global corporations adapt and thrive in an increasingly interconnected and dynamic global market. This blog is for anyone who is interested in organizational design.

The character of multinationals till the 20th century.

While there are have been trading across nations from time immemorial, the concept of an organization is more recent, coming into prominence during the time of industrial revolution. Companies like the East India Company (set up by the British in colonized India) were essentially military organizations that ensured that colonies provided rare and cheap raw material to the colonizer for feeding their industries back home- be they mining, diamonds, tea, spices, cocoa, and what not. The character of such companies was typically as master-servant, colonizer- colony in terms of their relationship. They were ‘multinationals’, with colonies being ‘providers’ more than anything else. I call this design the ‘colonial model’ of the multinational organization. Nestle, Brooke Bond, De Beer Diamonds are all examples of commercial organizations that leveraged the colonial presence of their governments to provide them with raw materials for their factories. ?

As countries gained independence and financial wherewithal, they also emerged as markets for these multinational organizations, even though much of the controls still remained in the home country. Whether it was pharmaceuticals, consumer goods, or infrastructure goods, the opening of global markets saw the hunger for such goods and services allowed primarily western multinational companies to flourish to take advantage of the former colonies as markets. I term this design the ‘market model’ of the multinational. Unilever, Glaxo, Proctor and Gamble, HSBC and others saw tremendous growth as the developing economies opened up.

In the last two or three decades of the 20th century, the model shifted once again- moving from a multinational to a transnational model. Multinational corporations operate in multiple countries but manage their operations from a central headquarters, emphasizing national distinctions and adapting products and strategies to each country. In contrast, transnational corporations maintain significant operations in multiple countries but do not prioritize any national headquarters, striving for a global approach to production, marketing, and management, thus minimizing the importance of national boundaries.

Transnational companies started shifting the manufacturing and global operations to low-cost countries to gain cost economies by eliminating duplications and efficiencies. The need for regional or country-based HQs also was driven by the emerging complex nature of global economies and the need to understand regional and local regulatory and geo-political dynamics. The GE organization epitomized this model. For GE, India was both a market but also a global back office, while China was a market as well as production center. All the businesses had to connect with a regional HQ that monitored the company’s interests across the whole region.

The character of multinationals in the early 21st century.

With the advent of the internet, faster modes of travel and global treaties, there was a paradigm shift in opportunities and challenges for transnational organizations towards the end of the 1990s and early part of the 2000s. Countries were not just leveraged as markets or sources of raw materials, but now too, for their core competencies and competitive advantages. The HQ now assumed the role of driving synergies and efficiencies across the regions/ countries. Unilever presents such a case study. By centralizing decision-making where global scale could be leveraged and maintaining regional flexibility where local responsiveness was key, Unilever enhanced its global competitiveness. The restructuring efforts under "One Unilever" also contributed to improved operational efficiencies, reduced costs, and a stronger, more focused brand portfolio poised for global growth. I call this the ‘network’ model with global HQ of Unilever playing the control center role.

Within a few short years, the global network model evolved into the global value chain model in the 2010s. An example of this I experienced at GE Healthcare- the manufacturing was optimized in different locations with each manufacturing unit adding value in the product in different places before the final product was built in Milwaukee, USA. Some sites were optimized for raw material sourcing and cheap labor, others were optimized for higher engineering processing and more sophisticated labor. The whole manufacturing eco-system across many sites were optimized, not each individually. The same thing happened for accounting processes- with processing happening, in a connected way, in low-cost centers in Gurgaon (India), Dalian (China), Budapest (Hungary) and Mexico City (Mexico). By creating centers of excellence and working them horizontally, the economies of scale exploded, offering advantages. Some organizations went further: to meet the phenomenal growth experienced by the organization, the entire manufacturing value chain was outsourced. These outsourcing companies now became stand along global companies- an important part of the global organizational equation for Apple- and soon for others too.

The post-pandemic era.

The advent of digital technologies and the globalization of supply chains have ushered in a new era for global organizations, marked by a shift from network models to platform-based models. This transition embodies a strategic realignment towards leveraging digital platforms and outsourced service models to achieve greater efficiencies, scalability, and innovation.

In the platform model, core competencies are focused on design, innovation, brand management, and customer engagement, while non-core activities are outsourced to specialized platforms. These platforms, offering services such as supply chain management, engineering, and processing, are not confined to serving a single organization but can serve multiple clients simultaneously, thereby creating efficiencies of scale and reducing costs for the organizations that utilize them.

A prime example of this model is Apple Inc., which maintains its competitive edge through a focus on innovation, design, and marketing, while outsourcing its manufacturing and certain non-core processes to specialized platforms like Foxconn for supply chain management. This strategy allows Apple to leverage the expertise and scale of its partners, ensuring operational efficiency and flexibility without the burden of managing extensive physical assets or routine processes. The platform model enables Apple to respond swiftly to market changes and consumer demands by adjusting its operations across the global platforms it employs.

The platform model offers distinct advantages over traditional organizational structures by enhancing scalability, allowing organizations to adjust their operations swiftly in response to market demands. It promotes efficiency through economies of scale, as platforms serving multiple organizations lower costs and improve operational effectiveness. The focus on core competencies under this model encourages more investment in innovation and product development, with platforms facilitating quick rollout and distribution. Additionally, the platform model affords organizations the flexibility to enter new markets or modify product offerings rapidly without the need for substantial investments in new infrastructure, making it a versatile and efficient choice for managing organizational operations.

One other advantage of a platform model: even much smaller organizations can aspire for a global market if they can leverage the platform model- since they can focus on the front end and take advantage of platform partners for everything else. In fact, some of these smaller players may have an advantage- they do not have existing legacy organizations to contend with, and their time to market can be faster and more nimble.

Over time, I envisage some platform-based companies becoming bigger than product-based companies. But that is a discussion for another blog.

Do you agree with my description of the evolution of global organization?