Summary: Increasingly, homogenous management teams made up of individuals who have spent their entire career at corporate headquarters will no longer be fit for purpose. Instead, companies need to ensure that management teams comprise individuals from diverse backgrounds and different ages, races and gender, who have experience of both fast-and slow-growth markets.
Despite broadly agreeing about the benefits of diversity, companies continue to struggle with translating their beliefs into action.
Three out of ten respondents say that they have no representatives on their management team from outside their home market and less than 10% have management boards where more than half the executives come from outside the home market (see Figure 5).
Figure 5: What proportion of your global management board originates from countries outside of your home market?
Source: Globalization survey 2010
With companies around the world pinning their hopes for growth on emerging markets, managers who have spent much of their career in the West will be ill-equipped to deal with the changing demands of their business.
“Managers in the West are unlikely to have experience of sustained double digit growth rates or to understand the challenges that this poses in terms of service delivery, manufacturing capability or human capital,” says Symon Elliott, Head of European Operations at Russell Reynolds Associates, a board-level executive search and assessment firm.
Management success in the West is not a guarantee for success in emerging markets
The skills and capabilities that are required for success in emerging markets are often completely different from those that have determined success in the developed world.
“The people who have risen to the top of Western multinationals are people who have succeeded in mature markets,” says the University of Maryland's Professor Gupta. “They're grandmasters at managing operational efficiency and at operating in a very process-driven manner. By contrast, the emerging economies require an entrepreneurial approach and the need to go easy on the processes because you need to make decisions at four times the speed.”
As companies pursue increasingly ambitious global expansion strategies, it becomes critical to have executives in place who understand the strategic markets of the future.
A growing number of companies recognize this. In April 2010, Mastercard announced that it had appointed Ajay Banga as its new CEO. Born and educated in India, Banga previously ran the Asia-Pacific business at Citi. The appointment sent a strong signal to the market about where the company expects its long-term prospects to lie.
Equally, emerging market companies are looking for Western experience to help spearhead their expansion. In early 2010, Tata Motors announced that it had appointed Carl-Peter Forster, the former European Head of General Motors, to become its new Group CEO. His long-standing experience of running a business in developed markets again provides a clear indication about Tata's plans for expansion to the West.
“Multinationals from developing economies are increasingly looking to inject foreign talent into their leadership teams to help support their regional and global growth ambitions,” says EY's Nigel Knight.
International experience becomes a prerequisite
For some companies, the need to have international experience is becoming a prerequisite for a position on the executive board.
“Any manager in my top 250 people will have spent up to 50% of their career in at least three overseas markets,” says N Chandrasekaran of Tata Consultancy Services. “We encourage key managers in all our markets to move between countries in order to get global exposure.”
Tomorrow's successful companies will be those that are already grooming and empowering diverse leaders through strategic leadership development programs.
Respondents to our survey generally share this view. Just over half agree that there is a link between diversity and superior reputation and financial performance (see Figure 6).
Figure 6: Which of the following statements best describes your assessment of the link between diversity and reputation/financial performance?
Source: Globalization survey 2010
Only 15% think that diversity does not have a positive impact on reputation or performance.
A diverse management team may also have a positive impact on recruitment and retention, particularly in fast-moving emerging markets, where attrition rates can be high. If recruits can see that the top echelons of a company include individuals from a similar background, gender or race to them, they will be more likely to consider that their experience will be valued at the top table.
What do companies need to do?
- Put in place talent management programs that encourage diversity of experience — as well as diversity of backgrounds, genders, ages and cultures.
“Mobility is going to be crucial for organizations that want to operate on a global basis,” says Blair. “Those organizations that are running programs where you are rotating people and getting that global experience are going to be at a major advantage.”
Postings to emerging markets, which may once have been regarded as tantamount to being sidelined, must now be seen as a crucial component of the senior manager's toolkit.
Equally, managers from emerging markets must be given the opportunity to spend time in developed markets as part of a structured career-management program.
A growing number of companies are instituting formal, global programs that give managers experience of different regions in order to prepare them for senior leadership positions.
HSBC, for example, operates an international management program for recent graduates, whereby individuals are given a new assignment every 18 months to two years. Many of the bank's senior executives have emerged from the ranks of this program.
Greater employee mobility sounds like common sense, but there can often be resistance to it.
A key barrier to wider adoption is that managers will typically want to hang on to good staff rather than see them relocated halfway around the world. This is particularly true in companies that have experienced downsizing and where resources may be stretched.
“The desire to hold on to talent is understandable but is short-term thinking,” says Blair. “If you want to survive and prosper as an organization, then you need to nurture talent but be able to move it on a global basis.”
- Make the transition to a new style of leadership
Rather than maintain a command and control mentality, business leaders need to give regional managers the latitude to make decisions locally without constant review from head office.
They also need to be comfortable with the notion that different regions will be operating at different speeds and taking divergent paths to achieve their objectives.
Orchestra vs Jazz band
Navi Radjou, Centre for India & Global Business at Cambridge Judge Business School, draws a parallel with the difference between an orchestra and a jazz band.
Whereas an orchestra follows the lead of a conductor, a jazz band relies much more on improvisation and individual flair to create its own form of harmony. “In a jazz band, there's a lot of bottom-up experimentation as opposed to top-down management. It's the same in business. I would say that the leadership style of the future will be more about facilitation than being prescriptive about how employees should act.”
- Get comfortable with multiple perspectives
“Business leaders will have to figure out how to manage multiple viewpoints and perspectives across the company,” says Radjou. “But rather than trying to seek convergence, which is the easy route, companies will need to encourage divergence, because divergence leads to diversity and diversity leads to more innovation. If you want to fight complexity, the answer is not simplicity.”
Cultural, gender and generational diversity
Companies should also bear in mind that diversity has multiple dimensions. As well as maximizing cultural and gender diversity, companies will increasingly need to manage generational diversity, particularly as populations in many markets age.
“By 2020, companies will essentially have workforces made up of three generations,” says Radjou. “Human resources strategies that work for one generation may not be appropriate for another and companies need to recognize those differences if they want to build and retain an effective workforce.”
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