In your new book Managing Global Accounts, you mention that globalizing firms often overlook the globalization of customers.
There’s an awful lot of talk about globalization, and there are books, but they tend to be more macro and do not get inside the organization. This book is really about getting inside the organization. I teamed up with two former senior executives — Fred Schindler from IBM and Dave Potter from Xerox — so the book brings together their extensive real-world experience and my research, which is based in part on a forum that we’ve been holding here at Columbia.
The starting point is the way companies are organized for global business, and many of them are organized by geography. They have a person in charge of a country — the country manager for Argentina, for example — and that country manager reports up to a regional head. That particular structure works very well with the management theory that says you push responsibility and authority down in the organization.
Now, another major trend that’s occurred is the changing cost structure of organizations. If you divide companies’ costs into procurement costs and internal costs, there’s a secular shift towards more procurement. So if you’re a general manager or CEO and you’re concerned about getting cost improvements, a fairly obvious place to look today is in procurement. And the people that are moving into procurement jobs often are very high fliers, so the management expertise in procurement is much greater today than it was a number of years ago.
With that as a backdrop, what companies are also doing because of globalization is looking at ways to buy products and services globally. In this geographic structure, let’s suppose that there’s a meeting where this new global procurement guy from corporate meets with all the procurement managers from different countries. And let’s suppose they start talking about the prices they’re paying for some product that they all buy. If you go around the room, it becomes pretty clear that the price is different in different countries. It also becomes pretty clear that what the suppliers are doing is segmenting by geography and extracting the best prices.
And then somebody says, “It would be a great idea to procure globally, because rather than buying little bits of stuff we’d be buying huge contracts, and the prices would go down.” So then they say, “OK, let’s call the supplier and talk about this.” But then they call the supplier and there’s nobody to talk to, because the supplier is organized exactly the same way. They’ve got somebody in charge of sales in Argentina, and that person is measured on how well he or she does in Argentina. Nobody cares about this customer in all the different countries. They care about them in the individual countries, but nobody cares overall.
Should every company that operates internationally have a global accounts program?
I think that depends. If your customers are going to some form of global procurement, you have to match that in your organization, absolutely. Now, let’s suppose you’ve got a big multinational customer that isn’t buying globally. It seems to me that if you’ve got a global program in place, then you can be very helpful to that company as it moves to global procurement. So I wouldn’t say everyone has to have one, but the forces out there seem to be changing the procurement behavior, and if that changes, then you’ve got to do it. And it doesn’t matter whether the supplier is a big company or a small company.
The book notes that many top companies have tried unsuccessfully to leverage their strategic accounts program into a global accounts program. What pitfalls should companies watch out for while setting up a global program?
There are problems on the customer side and on the supplier side. Let me begin with the customer side. Taking the example I used before of all these procurement managers talking about the different prices they pay, let’s suppose that the average price across all the countries is $100. And they think, if we go to global procurement, we’ll probably get that down to $80. The countries that are paying $120 or $130 think that’s great. The countries that are paying $60 might not be very happy about global procurement.
It’s the same sort of issue on the supplier side. If I’m the general manager of Argentina and I’m getting sales revenue out of one of these global customers, and now in comes some other unit that’s going to have responsibility, that’s cutting into my direct authority and responsibility. So there are a lot of internal problems, shifting from this very well entrenched geographic structure into some other structure that’s dealing with customers on a global basis. Basically, organizational change is what it’s all about. And with any change in an organization, some people will be in favor of it and some people will be against it. Very often the country managers and regional heads are very powerful people. It may not immediately be the thing that they want to do.
So that’s why you say that the scope of the program should be directly tied to the level of commitment on the part of top management?
That’s right — for this to work, top management’s got to be behind it. The second issue is start it small, because it’s very complicated to do. Companies will screw it up, inevitably, because there are so many moving parts. So do it on two or three or four or five customers, get it right and then roll it out. That’s how the best companies have done it. IBM is right at the forefront of this, but they’ve had three or four different iterations in the last 10 or 15 years. I remember a country manager in France telling me that if he called a cabinet minister, the cabinet minister would return his calls. When IBM withdrew the budgets from the country managers, the country manager job totally changed. That change is very tough to implement, and you don’t just do it unless the person on top is saying, “This is the way we’ve got to go.”
Can you talk about an example of a company with a successful global account program?
IBM is really pretty successful. What they did was to divide the world up into industries. So if you take a manufacturing organization, the global account manager for that customer would report up through that industry rather than through a geography. That’s a very big change. They’ve got to the stage now where they have really senior executives running their major global accounts, because those accounts are worth a lot of money. If you’ve got a company that gives you $100 million in revenue a year, if you use a 10 percent discount rate, that makes a lifetime value of a billion dollars.
Citibank is also pretty successful. IBM’s program is probably around 200 accounts. Citibank has 1,600 or 1,700 accounts, and they put a tremendous amount of effort into the people that serve in those global account manager roles, right through to all the systems and processes you’ve got to have to make it work.
One of the major problems people run into is very simply the accounting system. Going back to where we started, with my multinational supplier, there’s a P&L statement almost certainly for Argentina. There’s a P&L statement probably for the Latin American region. There are almost certainly P&L statements for the various products they sell. But there aren’t P&L statements for customers. So this customer is around the world. Do we know if we’re making any money off them or not? And so one of the things that companies are having to do is to put in systems that enable them to look at Siemens and say, “Are we making any money off of Siemens?”
There’s this old statement in management: If you can’t measure it, you can’t manage it. And many companies are sort of in the dark because they just don’t have that data.