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By Ellen Pearlman
Also See:
Globalization: A Different View Of The Business World
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Strategic Thinkers: C. K. Prahalad and Hrishi Bhattacharyya
Credentials:
Prahalad is the Paul and Ruth McCracken Distinguished University Professor of Corporate Strategy at the University of Michigan's Ross School of Business, he is the co-author of The New Age of Innovation: Driving Co-Created Value Through Global Networks with M.S. Krishnan (2008), author of The Fortune at the Bottom of the Pyramid (2006) and co-author of The Future of Competition: Co-Creating Unique Value with Customers with Venkat Ramaswamy (2004); Prahalad was named "The World's Most Influential Management Thinker" in 2007 by the Times of London and "the most influential thinker on business strategy today" by BusinessWeek.
Bhattacharyya was formerly a senior vice president at Unilever and is now a management consultant and part-time teacher at the Ross School of Business at the University of Michigan and at the London Business School.
Big Idea: Successful companies of the future will be organized around a gateway-hub model instead of a centralized or decentralized global model
Article: "Twenty Hubs and No HQ" by C.K. Prahalad and Hrishi Bhattacharyya, published by strategy+business, May 29, 2008. Register at the site to get the article.
When C. K. Prahalad proposes a new model it's always worth listening. The highly regarded business thought leader, professor and author sees things that others often miss. So I read his latest article in strategy+business, co-authored with Hrishi Bhattacharyya, with great interest to discover the unique perspective that I was sure he would offer. I was not disappointed.
His new form of global organization is not built around a single headquarters with a bunch of regional offices nor around a headquarters model that tries to manage businesses in dozens of markets around the world. Instead, the authors envision a gateway-hub hybrid model set up in 20 gateway countries that account for about 80 percent of the world's economic activity and 70 percent of the global population. Ten of these countries are in the developed world (U.S., Japan, Germany, UK, France, Italy, Spain, Canada, Australia and the Netherlands) and the other ten are in the developing world (China, India, Brazil, Russia, Mexico, South Korea, Indonesia, Turkey, South Africa and Thailand). Of course, not every multinational corporation (MNC) would choose to adopt this model in all 20 countries, but these are the countries that provide market access, are themselves producers of goods, have demonstrated an ability to be innovative and produce quality products, and have reasonably well-developed infrastructures. And additional countries could be added to this list as their capabilities develop.
Each hub would have primary responsibility for serving the gateway market, as well as other regional countries. The hubs would be responsible for most of the management of the business (supply chain, product development practices and launches, marketing, branding, acquisitions and talent recruitment). All the hubs would probably be involved in manufacturing, but R&D would probably not be incorporated everywhere.
The leaders of each hub would report directly to the CEO-providing an opportunity for local knowledge to be at the heart of all management decisions. The authors said, "Perhaps the greatest advantage of this structure has to do with the changed role of the center. In the fully realized gateway-hub MNC, the topmost executive committee contains leaders from all the hubs; management is diversified across the key countries of the developed and developing world. For the first time, the people at the top of the global hierarchy are close to where the action is - they are physically near their customers and markets."
This new structure recognizes the tremendous opportunities that exist to serve the new middle class emerging in many countries. By starting with these 20 countries that serve as gateways to nearby regions, companies would have access to and understanding of how to best serve the needs of these billions of consumers.
What examples do the authors provide of MNCs that have developed this seamless global model? Unfortunately, there are none that they know of that have adopted this approach fully. The authors say that many business leaders are aware of the opportunities that these new global customers offer but they are slow to organize their organizations in ways that allow them to truly serve a global economy. Often these executives still think of developed markets and emerging markets as distinctly different and have not developed a structure that can integrate them.
This model is based on the needs of the marketplace and not on the needs of the home office or the executives that work there. I think that's pretty revolutionary and certainly innovative.
Excerpts reprinted by permission of strategy+business, all rights reserved.
Also of interest:
Book:
The Fortune at the Bottom of the Pyramid: Eradicating poverty through profits by C. K. Prahalad, published by Wharton School Publishing, February 2006. How to tap the buying power of the billions at the bottom of the global pyramid.
CIOZ Question:
What do you think of this gateway-hub model? Could it work in your organization?
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