UK: Multinationals search for a structure for Europe. (1 of 4)

UK: Multinationals search for a structure for Europe. (1 of 4) - Companies with growing pains are seeking guidance. Tom Lester reports.

Last Updated: 31 Aug 2010

Companies with growing pains are seeking guidance. Tom Lester reports.

Ask any battle-hardened executive about his company's organisation and he is likely to shrug cynical shoulders and describe the progression from one structure to another; from centralised power to decentralised and back again, "like a pendulum"; from functional divisions to product divisions to regions to functional divisions etc. The story is one of constant flux, offering little hope of solving the real problems of the present, still less building for the future. It exaggerates, of course, but the responses to a recent survey, "Organizing for Marketing Advantage: Sales and Marketing Structures for the Europe of the 1990s" (Business International), suggest that most multinational companies are anxiously searching for some Holy Grail to guide them in the direction and control of their growing European empires.

The nub of the problem is the balance that has to be struck between central authority and local autonomy. If the pendulum swings too close to the centre the corporate outposts are left floundering between an inappropriate strategy and local realities; too far in the other direction and the centre may be dragged towards the strongest outposts, with no capacity for radical moves when these become necessary. It is the classic dilemma that all empires experience, but the survey results show that - at least among 40-plus multinationals questioned - modern executives are no nearer solving it than the ancient Greeks.

They may have more excuses. The European market now effectively consists of some 440 million people in 21 countries - more still if you add in the Balkans and western Soviet Union. It is the largest trading bloc in the world, with each country closely connected to and influenced by its neighbours, but nonetheless separate from them. Multinational managers therefore have to cope with a plethora of different markets, all comparatively prosperous, and all with some similarities and some differences. For most purposes the markets have to be treated separately, but for some purposes they can be treated alike. Advocates of globalisation are notably hazy about how to decide which category each issue falls into, and how to organise the company to take best advantage of economies of scale, while still retaining the flexibility to outmanoeuvre rivals on the fields of battle.

In their search for their own solutions, well over half of the companies in the survey had made significant organisational changes in the previous two years. In 1990 alone, BP, IBM, Hoechst and ICI all announced major restructuring programmes. All four appear to have pushed significant power out towards the periphery. Of all the companies that have changed their structures, half have done the same. Yet a further quarter have set out to strengthen central control. It is tempting but misleading to wonder which course is more appropriate to post-1992 European markets.

Even a superficial examination of the centralised/decentralised issue reveals that the complexities of modern multinational business demand that both styles are incorporated into the same structure, very often over the same issues. The vexed question of pricing across different markets, for example, to which few companies even claim to have the answer, is one where the centre and its operating subsidiaries need to work together. The former is concerned about margins, return on investment, exchange rates, etc. And it is also involved with the global positioning of each of its products, or the problems created by "grey" imports from one territory to another.

Meanwhile the action takes place in each local marketplace - not always even at the national level - and that is where the competitive battle is won and lost. The local management must therefore have the freedom to trim its prices to suit local conditions, but not so far as to threaten the profitability of the product or the neighbouring markets. A margin of plus or minus 10 or 12% was quoted as permissible by one or two companies.

The car industry regularly gets into a tangle with consumer bodies and others over its practice of pricing according to the local market, which gives rise to disparities between countries and to policies designed to stop cross-border sales. Renault, instinctively a strong centriste, explains in the survey that local sales companies supply Paris with details of competitive products, prices and sales performance. The commercial planners there recommend price levels to the finance division, which has the final word - but not quite final, of course, because it is the distributors and dealers which decide on the prices at which actual deals are done.

Simplistic advice to "think global, act local", or reserve strategy to the centre while leaving tactics to the periphery, offer little help in such tangled issues, which demand close co-operation and understanding between the two.

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