Are multinational companies stronger than those with smaller geographic footprints? Not according to McKinsey.

In its July quarterly report, McKinsey says multinationals pay a penalty for global reach in terms of “critical dimensions of organizational health” – direction setting, co-ordination and control, innovation & influencing external stakeholders.

The data to support this conclusion came from more than three dozen local and global “champions” who outperformed their competitors over the last ten years. When these companies were compared by the critical dimensions of organization health, McKinsey found that global organizations:

  • Were less effective at setting  shared visions and engaging employees
  • Had lower professional standards and innovation
  • Found it more challenging to build relationships with government, communities and businesses.

The authors of this report found this penalty “troubling” and so conducted further interviews of 50 global companies to rationalize these findings.

Interestingly, they found that all companies experienced tensions between global and local control. The tensions manifested themselves in heated debates across all levels of executives. Almost 40 per cent of companies surveyed agreed that “internal networks” and reporting structures are not only ineffective but just add cost and complexity. Many executives in the multinational companies said that the diversity of their markets prevented transferable lessons and best practices and slowed down decision- making compared to local champions.

The article goes on to question the feasibility of centralizing HR, finance and marketing to the point where McKinsey – the epitome of a global firm – wonders whether it is time to reconsider whether a single headquarters is up to the task of effectively directing and co-ordinating a global company.

I found this article highly relevant for H+K as we attempt to further globalize the firm.  Among our international peers we stand out as the only consistently successful PR and GR company in Canada.   We have always been able to attract the top talent in our industry. Good people are usually attracted to companies that place a high degree of trust in them and they don’t mind being held accountable. But, they also want the authority to do their jobs in a manner that best reflects local conditions.

H+K has also always respected the autonomy of local management.  All too often international companies do not give local managers the authority to make their own decisions and investments. They often insert themselves between local clients and management, underscoring foreign control.  Or, they centralize key functions to the point where business processes don’t make sense. For example, in the case of one of our international competitors, invoices in English were sent to the French-speaking client base.  Our real competitors are local champions because international competitors have paid a steep penalty by trying to extend too much control.

The vision of one company where consultants with transferable skills can focus on clients across all borders while global headquarters manages is appealing – if only for reasons of simplicity. This has been the McKinsey model but as I argued previously, it is not a model that lends itself to an essentially local business like PR. Instead balance is called for.  A “glocalized” firm model remains a work in progress that we should all be prepared to evaluate if we want to shape the future of our company and our industry.