A global chemical supplier had a range of business units at different stages of maturity. The most established and profitable line of business was a specialized additive, for which the company controlled roughly 75 percent of the global market share. Still, demand for this specific product was limited, so the company developed a number of other business lines to provide the potential for growth.
Traditionally, the company was managed centrally out of the US, with sales and factories managed by regional offices. Meanwhile, the key global players in this particular industry were in China, and gaining share there was critical for the specific business line’s growth globally. However, the company had yet to sufficiently establish a presence with these customers.
To penetrate this market and align its primary growth strategies, the company had to reassess its leadership structure. While it was headquartered in the U.S. with multiple regional offices in Europe, as well as in Shanghai for the Asia region, the company lacked an organizational matrix that aligned the responsibilities of the Asia region leader with those of the global heads of business lines located in the US. Furthermore, it was felt that the central command lacked responsiveness and boots-on-the-ground knowledge of Asian customers, which caused tension and inhibited growth across the company.
The need was to assess the global management structure. Should the company give more profit and loss responsibility to the regional manager, which would create a predominantly regional leadership structure for the company and potentially reduce the leadership effectiveness and oversight capabilities of the global business lines? Or should the company rearrange its leadership structure altogether?
Discovery & Solutions:
Strategic Decision Group’s approach to solving this management tradeoff was two-pronged. First, SDG understood the company’s plans and wanted to appreciate the different stakeholders’ views of the situation.
To do so, we first interviewed 20 of its top global and regional leaders. We had them explain the advantages and disadvantages of their current leadership structure, as well as pain points and obstacles related to their growth initiatives. Secondly, we benchmarked other companies that had faced the same dilemma to understand how they had tackled the issue. From our initial research, we found a complete mismatch internally: the company’s central leadership believed they could deftly steer the business into these key growth businesses from the US, whereas regional leadership in Shanghai felt they lacked the resources and authority to effectively penetrate the market.
The Benchmark interviews made compelling arguments for and against the degree of centralization that was necessary, which led to us recommending two alternative approaches that could be taken:
- Provide the regional leadership in Shanghai with more profit and loss responsibilities for all businesses in the region, which was the wish of the regional leadership; or
- Transfer the head of the specific global business unit with the highest growth objective to Shanghai from the US, so that he/she would be directly embedded in the market and better positioned to lead. To note, this option had not ever been considered by the company.
Results & Impact:
When SDG presented the evidence to the company, the combination of external research and internal insights provided a high degree of clarity. Since we had focused on dialogue with the key stakeholders and external references throughout the process, we were able to reflect the pros and cons of each possible approach without bias.
Essentially, the research and analysis presented a true assessment of each alternative while clearly outlining their potential benefits and challenges. The compelling argument that ultimately helped the company come to a decision was the need to have fast local responsiveness that was capable of understanding local decisions for the specific growth business in a global context. The customers of the key growth business saw themselves as global players, and expected supplier leadership to be able to decide global priorities locally.
From this process, the company decided to transfer the global head of its highest-potential business line to Shanghai. Meanwhile, the regional manager was transferred to the US to lead a separate, US-focused business line. This effectively established the global heads of the various business lines as the predominant “line” organization in the company, which matched the global nature of the businesses that the company was addressing.
The company’s top leadership had to accept a more decentralized approach with some senior leadership not located on the same corridor. Regardless, the company achieved considerable growth, and was eventually acquired at a high premium by another global player, creating significant value for shareholders.