Towards Building 100 year Companies
Date: Wednesday , August 01, 2007
The world is at a historical inflection point today, with the character of business and business models undergoing rapid changes. From the ‘international’ and ‘multinational’ models of the nineteenth and twentieth centuries to the present ‘globally integrated’ model, which is set to define business in the twenty-first century, business models have undergone dramatic changes creating greater opportunities across the world.
As Indian businesses gear up for the highly competitive global landscape they need to think deeply about the drivers of their success. Today, a globally successful enterprise is one that is ‘integrated’ in the true sense of the word. In a nutshell, a ‘globally integrated’ enterprise shapes its strategy, management, and operations in a truly global manner. It locates operations and functions anywhere in the world based on the right cost, the right skills, and the right business environment, and it integrates those operations horizontally and globally.
In the past one year, the cross-border mergers and acquisitions (M&A) by Indian businesses grew by over 73 percent over the previous year. These were led by highly publicized acquisitions including Tata Steel’s takeover of Corus and Hindalco’s acquisition of Novelis. These developments point to the maturing of the Indian enterprise as a global player, and to the realization among Indian companies that globalization is no longer a choice but a necessity for business success. Over the next few years, we should expect this to increase further.
The most important aspect of devising a robust growth strategy is to ensure sustainability. It is imperative that businesses think through their strategy, operations, and work culture (management policies). Entrepreneurs need to ask themselves where they want to take their businesses and devise appropriate strategies, rather than emulate a peer.
In the case of an M&A in particular, strong and smooth integration of the businesses is most important. Integration teams usually focus on driving cost synergies, rationalizing product lines, eliminating duplicate back office functions, and consolidating data centers as the first steps. These are all important elements to make an M&A operation successful, but they need to be carried out in the context of the business capabilities that the M&A was conceived for. The integration should be driven by the proposed business model of the combined entity.
Whatever the model a company eventually adopts, standardization of processes across all centers is a must. Consider the cases of globally successful firms like Nestle, Procter & Gamble and closer home, Bharti; standardization helped them surge ahead in their businesses when their competitors were struggling with a plethora of processes and resultant stagnation. In fact, we at IBM were able to reap a US $2.4 billion benefit after standardizing our processes
The primary factor businesses must keep in mind is that the average half life of a technology company is 10 to 15 years. Companies that have already lasted that long, or aspire to last beyond it, should focus their strategy on shaping the market and devising a business model that is flexible, yet one that leverages the power of global access and networks. This could help them truly surge ahead towards becoming 100 year companies.
The author is Director, Strategy & Business Development, IBM India / South Asia. He can be reached at email@example.com