Global Management: Central or Local?

"Multilocal?"

That's the new McKinsey coinage intended to lend new intellectual luster and heft to the perennial management-theoretical challenge of how to manage multinational firms. No matter how familiar the business issues, now is probably an especially timely moment to revisit them, given the strenuous economic environment. In good times, suboptimal management can be overlooked; but at times like this there is no room for slack in the rigging.

Here, then, the familiar landscape:

• geographic or product area focus?
• heavily centralized or with greater local customization?
• capitalizing on cross-border synergies or maximizing local, country-specific practices?

The fundamental challenge is to capture the greatest value from local practices while also benefiting from the value of an international platform and brand.

This is not an a abstract exercise; it is deeply ingrained with, and commences from, where your firm actually produces value. If, for example, you're a capital markets-centric New York and London powerhouse, a centralized and more or less top-down approach may be ideal. To the extent you have other offices, they may be more branches of convenience than full service local outposts in their own right. Conversely, if your firm has a more widely diversified portfolio of local practices (say, energy in Moscow, IP in Milan, project finance in Dubai, startup financing in Eastern Europe, etc.) then headquarters needs to "get out of the way" of these country-specific profit centers.

So far, these elements of strategy may appear relatively self-evident, but the devil is typically in the execution. If the goal is maximizing cross-border value, here are three barriers on that front:

• Lack of awareness. Is anyone actually responsible for identifying cross-border opportunities? Or is it all ad hoc and hit or miss?
• Motivation. What value has management placed on collaboration? Is it an element in the determination of compensation? Are local fiefdoms jealous of sharing their clientele and/or expertise? Again, does the compensation calculation reward multi-office collaboration or implicitly penalize it through ossified origination and billing credits?
• Poor execution. This can stem from things as simple as language and cultural differences, but more fundamentally the threat to seamless execution is murky accountability and the absence of a champion promoting multi-office teamwork.

Consider some partial measures--short of centralized mandates--to facilitate more "natural" and instinctive collaboration. Such as?

• Sharing best practices, deal templates, and the like.
• Rotating and "seconding" people among offices.
• Creating a firm "university" (or utilizing one of the many many business schools eager to do it for you) to bring leaders together and engage them in creative problem-solving.
• Geographic--read: regional--clustering. There's probably a sweet spot between total centralization and pure local autonomy that can achieve several objectives:
  • integrate similar practices across countries
  • avoid duplication
  • manage the performance of the firm across several countries in a more coherent fashion, and
  • economize on travel expenses.

None of these suggestions and recommendations are earth-shattering, but cumulatively they serve as a virtuous reminder that global firms face a continuum of choice over how centralized or how locally autonomous they choose to make their management.

And especially in our industry, where local jurisdictional, substantive law, regulatory and licensing issues are so much more critical to what we do than (say) different packaging preferences might be to a consumer goods firm, it's important to try to strike the right balance between capitalizing on local law capability while maintaining the "one-firm firm" strength of a global platform able to seamlessly serve our equally global clients. A light hand on the reins.