Building Global Business Capabilities

2006 – Speech given by Dan Lewis (Managing Director, Global Commercial Markets) at the London Business School.

Dan Lewis

Good morning.  It is my pleasure to join you this morning to discuss Building Global Business Capabilities.

In the interest of time – I’ve consolidated several decades’ worth of experience in the airline, aerospace, automotive, industrials, consumer goods, services and retail sectors into five summary points on globalization and global business capabilities.

So, here’s my abridged take on today’s topic:

#1 GLOBALIZATION IS UBIQUITOUS, AGE-OLD… AND ALWAYS CHALLENGING

Interestingly, the term “globalization” is relatively new.  During the 1970s, it was never mentioned in The New York Times, not once.  Even in the 90s, “globalization” appeared less than twice a week.  And yet, the underlying imperative has been with us – indeed, has driven us as a species – since the days of the Roman Empire. 

This island we’re gathered on is no stranger to the urge.  In 1900 – over a century ago – a quarter of the globe was ruled from right here in London. The British Empire was 125 times the size it is today. So, the impetus to extend one’s borders is nothing new … only the label we’ve chosen to give it … and the entities engaged in its pursuit.

Today, our global empires tend to be commercial … global business empires.  Fully a third of the world’s 100 largest economies (based on GDP) are companies, not countries. The largest, Exxon Mobil, comes in at #45 … tied with Pakistan. Progressively collapsing regulatory, technological and geopolitical barriers have unleashed the flow of capital – physical, financial, and intellectual – and turned us all into global citizens … some more reluctantly than others.

No longer is The New York Times mute on the subject of globalization … or any other information resource, for that matter.  In fact, if you “google” globalization, you’ll come up with no fewer than 2.6 million links. If you “Google” anti-globalization, you get 93,000.

My second observation on globalization is this:

#2 MANY PARADIGMS HAVE FLARED… THEN FIZZLED

Our approach to managing global operations has been as mercurial as the markets we serve.
For the most part, large companies have progressed through four basic stages of evolution:

1) domestic
2) international
3) multinational and
4) global … which most are just now grazing
 
Beyond these broad stages, however, there is no constant or consistent approach to globalization.
Companies have wrestled with geographic versus functional matrices … local partnerships versus buying into a market. Most recently, Internet business models have redefined global business paradigms.

Whatever the particulars of how we’ve organized to go to market, however, business’s fundamental approach to globalization throughout much of the 20th century was remarkably consistent in one material respect. It was imposed. Whether the product was a “Big Mac” or “Baywatch,” we produced it, packed it, shipped it … then threw it over the wall. That is, until the wall came down … which brings me to my third point.

#3 WITH THE COLLAPSE OF THE BERLIN WALL, REAL GLOBALIZATION TOOK OFF

Starting in 1989, the world order, as we knew it, imploded.  The Soviet Union crumbled, the European Community took root, apartheid disintegrated, NAFTA succeeded, China emerged as an economic powerhouse and the UN as a legitimate global authority. For more than a decade, the world’s population enjoyed a period of relative tranquility and economic prosperity … a peace vacuum during which globalization gathered unrelenting momentum. And in that vacuum, the Internet metastasized, networks proliferated and democracy spread. The result is a world where individuals, companies and governments have never been so interconnected … and interdependent.

This networked global economy has unleashed enormous opportunity … but also unprecedented risk. Thirty percent of the U.S. economy’s growth in the 1990s came from foreign trade. Another third was derived from information technology and productivity gains.  Those same open borders and free information flows; however, became instruments of terror on September 11th, 2001 … which brings me to my fourth point and the thesis of my remarks.

#4 WE ARE INCREASINGLY INTERCONNECTED AND TRANSPARENT, BUT NOT HARMONIZED

As we’ve moved into the 21st century, our perceptions of risk and opportunity are wildly different then they were in the post Cold War period.  Today we live in a vastly more complex and uncertain world. Risks, while always present, are now greatly amplified and dangerously asymmetric. The networks that connect us also expose us – render us, at once, more secure and insecure. Where before capitalism and communism existed in cold isolation, today, we cannot disconnect from the rest of the world – so discontinuities or crises in one market ripple across the globe, often gathering force.

The Asian Crisis of 1997 is now the classic – indeed vintage – example of this domino phenomenon. What began as a currency crisis in Thailand quickly triggered a flight of capital from all the Southeast Asian emerging markets, including Malaysia, Indonesia and South Korea. This regional recession, in turn, provoked a slump in commodity prices around the world, debilitating Russia’s economy, which had become heavily dependent on taxes from crude oil.

Just as crude oil transmitted the crisis from Asia to Russia, so hedge funds shifted it to other emerging markets, particularly Brazil. Looking to offset their huge losses in Russia, the hedge funds started liquidating their investments in these otherwise sound economies. Brazil started hiking its interest rates to as high as 40 percent to keep capital in the country. This triggered a stampede into U.S. Treasury bonds, driving rates down in the U.S. and triggering, in turn, the demise of the mega hedge fund, Long Term Capital Management, which had bet $120 billion dollars that T-Bond rates would go up.

As you know, Long-Term Capital Management had to be bailed out by its bankers, which helped spread the pain even further. Thus the Asian Crisis is the ultimate misnomer.  It was a global financial crisis – the first of many.

More recently, we saw Brazil caught in the undertow of Argentina’s economic collapse. We’ve seen developed economies around the world ride the hysterical highs and lows of the dot.com bubble. We’ve seen a cascade of corporate scandals sweep through the U.S. and Europe.

What would happen if China’s overheated economy were to take up significant economic intervention without the benefit of a strong banking system? Of course, the Chinese ideogram for crisis can also be read as “opportunity.”  And the very forces that accelerate and exacerbate negative changes also facilitate and foster positive ones.

The domino effect I’ve described is not restricted to crises. The long period of economic prosperity that much of the globe enjoyed in the 1990s is testimony to the good that global interconnectedness can foster. The challenge is to preserve the linkages and transparency that expand commerce while addressing the threats and vulnerabilities that expose it to heightened risk. Too many mistake connectedness for harmony, which is a costly error.  There’s a powerful difference between interconnected and harmonized … and today’s global business managers needs to appreciate and act on this distinction.

As you might expect, we have done some work in this area.  We have an entire practice area devoted to helping both corporate and government clients achieve what we call Enterprise Resilience – the ability to withstand systemic shocks, discontinuities and asymmetric threats. We stand out in this arena because we alone among the big consulting firms can claim a leadership position in both commercial and government work. 

Witness September 11, 2001. In the wake of the attacks, our officers and staff fanned out across Washington, DC to help clients at the Department of Defense, the FBI, the Department of Justice and the INS – while, at the same time, consultants in New York and other cities worldwide met with dozens of corporate clients concerned about security and disaster preparedness. Our domain expertise in information technology and defense systems coupled with our multifunctional knowledge of processes like supply chain management and organizational leadership allow us to offer clients a unique set of capabilities.

And that’s what we’re here today to discuss … capabilities … which brings me to my fifth and final point.

#5 YOU'RE ON THE RIGHT TRACK.  Developing and strengthening global business capabilities really is the secret to long-term success in this new world.

The granularity of what global business executives have to understand has skyrocketed. It’s not enough to know your business anymore. You have to know your customers inside and out. You have to master hundreds of systems, countless cultural nuances, and the art of delegation. Gone are the days when you could develop a strategy for Latin America or the Middle East from afar. To be effective, global business managers need to tailor their approach to individual countries, distinct tribes, and idiosyncratic personalities.

You need to be well versed in the qualities of the leader, the dynamics of the industry, the particulars of the company … and its customers.  Many of the skills and attributes, such as cultural sensitivity, the ability to make the simple complex, an appetite for ambiguity, and, of course, adaptability and responsiveness – are the critical success factors in any career these days. In fact, Booz Allen’s own success formula hinges on our ability to customize business models and systems to ever more fragmented global clientele.

When I look at Booz Allen’s own global odyssey – and I’ve been with the firm 27 years – I think we’ve managed to remain successful for three reasons: our own enterprise resilience combined with a strong sense of norms and values, and the fact that we’re private.

First, resilience.  We do practice what we preach.  Whether in Scandinavia or Saudi Arabia, we adapt to local conditions with associated different and distinct business models. In Australia alone, I think we have five different business models going.

• Industry Practices
• Public Sector
• Functional Practices
• Defense Markets
• Emerging Markets in Satellite Countries in Asia, etc.

This same flexibility is manifested in the global teams we put together for each client assignment. We have a high tolerance for different approaches as long as they are broadly consistent with our own norms and values. We have found that clients want and benefit from unique, focused and tailored solutions to country and product strategies not just average insight consistently packaged.

Booz Allen’s is an interesting global challenge. We have to deliver a heavily localized product that draws on the best of our global intellectual capital. Clients, while seeking a customized project, have an expectation of our product conditioned on our global reputation. What we deliver – while different in terms of local conditions and “packaging” – still has to be crafted from coherently linked insight market to market. It’s an interesting conundrum.

Finally, it doesn’t hurt that we’re privately held, free of the whims of the capital markets, and answerable to no one but our clients and our own high standards.

In closing, I’d like to emphasize that there is no substitute for “granular” knowledge – you must be cognizant of distinctive cultural norms and values and be focused on customer behaviors. The strategy for globalization must link local knowledge and global assets, but not so tightly that uncertainly and ambiguity can’t play out. Lastly, you must have a high tolerance for “differentness” and build it into multiple customized business systems.

Thank you.