Globalization in the New Millennium
 Copyright Greater Washington Society of Association Executives Reprinted by Permission

Author
Steven M. Worth

Publication
Executive Update

Publication Date
December 1999

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"Everybody talks about the weather," Benjamin Franklin once pointed out, "but no one does anything about it." Could the same be true for globalization? As we enter the new millennium, how many managers can say their organizations are ready to face the challenges of this global era? Wait! Before you put your hands up, take a look at the globalization efforts of four very different organizations. Do some of their problems and challenges sound familiar?

Case Studies in Globalization
The Association of Career Management Consulting Firms International (AOCFI)

Founded in the early 1980s, AOCFI is a New Jersey-based trade association representing professional service firms in the booming outplacement industry. With growing international membership and concern for the impact of legislation and regulations on its industry, the association relocated to Washington, DC, where it could better serve the interests of its international members and handle government relations for its U.S. members.

In the decade since the creation of AOCFI, Europe had become the single fastest growth market in the world for outplacement firms and services. By the mid 1990s, North America was considered mature, with slow to flat growth prospects. For this reason, the AOCFI board agreed to restructure "to give greater voice to Europeans and to evolve from being an American-dominated, international association to one that was more ‘global’ in outlook and governance structure," says Frank Louchheim, founding chairman of Right Management Consulting and current member of the board of AOCFI.

AOCFI encountered three challenges in the restructuring:

Standards. Small, nationally-based outplacement trade associations in Europe had nearly abandoned their efforts to develop professional standards for lack of consensus. Nevertheless, they resisted any attempt by the "American" association to offer assistance.

Dues. European dues were not priced at the same rate Americans were charged. When Americans challenged that European members were not paying enough, the Europeans countered by illustrating their many more diverse obligations at the national, regional, and world levels. If all their expenditures were taken into account, they argued, it would be obvious that the Europeans were, in fact, paying more.

Cost. The third challenge was to identify the added value of a new, global organization. If there were increased costs associated with creating such an organization, who would pay?

Despite this resistance, the AOCFI was able to obtain acceptance of its professional standards and even to reach agreement on a uniform international dues rate. Dues would be paid to the regional chapters, with a small portion allocated to the oversight of AOCFI’s international operations.

The operations of the European organizations were then merged into the newly federated structure of the AOCFI, which would be based on geographic regions. Since North America was slightly larger than Europe, it was agreed that the international operations would continue to be based in Washington, DC.

The next step was to rewrite the association’s bylaws to redefine the governance structure of North American, European, and other international affiliates. With a membership almost evenly split between Europe and the United States, the worldwide presidency would alternate between North America and Europe. The worldwide board of directors would give equal representation to North American and European representatives and further provide proportionate representation for every region of the world.

The next challenge was to identify the added value of international or global services for its members, of which there appeared to be few. Since the newsletter was in English, Europeans decided to create their own. The only remaining "international" product was the annual international conference, which should have been self-supporting. The most important association service was government relations, but because this service was rendered on a national basis, there was very little that the international organization could contribute. Very little actually filtered up from the nations and regions to the global body.

Deloitte Touche Tohmatsu International

In 1989, the senior partners of Deloitte, Haskins and Sells and Touche Ross negotiated the terms of a merger between the two accounting firms. Deloitte’s strong presence in the United States and Touche’s relatively strong presence outside North America created a natural synergy between the two firms. Merged, the new firm would move from seventh and eighth place in the lineup of the "Big Eight" accounting firms, to the third largest — after KPMG and Ernst and Young, but well ahead of Coopers, Price Waterhouse, and Andersen.

Heading Off Disaster

By early 1990, the merged firm faced a pending disaster. The merger was negotiated by the two firms’ largest partnerships in New York City, apparently without fully recognizing the interests of other international partners. By early 1990, the Deloitte partners of the United Kingdom, Belgium, the Netherlands, and Luxembourg voted down the merger, as did the Touche partners in Australia and New Zealand. Because these defections were clearly seen as the possible beginning of a more serious trend, damage control would be needed.

If the senior partners of the two firms wanted a global practice, they would need to create a governance structure that gave partners outside of North America a significant role. Since the whole rationale behind the merger in the first place was to create a global practice, there was really no alternative.

Because the U.S. practices (headquartered in New York City) were by far the largest, the most appropriate location for an international headquarters, to be led by an American, was New York. For this structure to gain credibility, however, the management and staff teams running the global firm had to be "international."

The international firm, to be named "DRT (for Deloitte Ross Tohmatsu) International," was later renamed Deloitte Touche Tohmatsu International. Partner representatives from all regions comprised the board of directors. And the professional staff consisted of young, English-speaking professionals from Deloitte and Touche practices in Europe, Latin America, Asia, and Africa. Decisions were by consensus, and while the opinion of the United States was dominant, it was also not conspicuous. The United States representative took care not to intervene in the day-to-day decision making of the global firm unless asked or a critical interest was at stake.

A New Purpose

The immediate mission of the international management team was to develop a unifying vision and mission for the new, global firm and to identify the products and services that made this new entity greater than the sum of its parts. Along with this considerable task was the unstated objective of preventing any more defections.

Identifying the products and services of the new, merged firm was difficult. Each firm, with their own products and services, was reluctant to concede superiority. Though progress was slow, creation of an International Lending Agency practice helped. The Deloitte Touche Tohmatsu ILA practice gave the new firm products and services its first tangible benefits. After some initial capital and personnel investment, the ILA practice became self-supporting.

Overcoming Barriers

The firm’s international staff helped assuage the language and cultural differences that existed throughout the worldwide firm, which had grown to encompass 110 countries. Though the working language of the international firm was English, translation and interpretation services were provided and paid for at the national level.

The budget of the international governance structure came from regional contributions, based on a percentage of revenue. Most of the budget was spent on staff travel and in paying for the travel of the partners participating in board meetings or in the many committees set up to develop common products, services, and practice standards.

And the Dust Settles

By the end of 1993, more than three years later, much of the international staff was disbanded and their budget cut back. The international products and services that had been developed were delivered on a regional basis. The regional chairs were responsible for the growth of the firm in their respective regions. While products and services were developed and delivered globally through the oversight of international committees, the financial and decision-making power of the firm resided in the regional structures.

Deloitte Touche Tohmatsu International might have proceeded much like AOCFI except that, unlike AOCFI, Deloitte Touche Tohmatsu had tough market competition. Since undergoing its first global restructuring, Deloitte has restructured itself still further in an effort to create a seamless, global organization, and is now more closely in line with its toughest competition, Arthur Andersen.

The International Bone and Mineral Society

The International Bone and Mineral Society is proof that a global governance structure by itself does not guarantee success in the global marketplace. Founded in 1968, IBMS represents medical doctors, teachers, and researchers who specialize in the study and treatment of diseases of the skeleton. With more than 700 members worldwide, IBMS holds international conferences (in English) and sponsors the publication of a medical journal (in English, though it is published out of the Netherlands).

Despite strong global growth in all aspects of skeletal research, a long history as an organization, a strong professional journal, strong finances, and a workable, global governance structure, the IBMS was dying. For a number of years its membership growth had been stagnant. As members and board members saw new and dynamic organizations growing, they voiced increasing complaints about the lack of direction and purpose at the IBMS. They began openly to question whether their huge savings should not just be given to another organization that could make better use of it. The IBMS president at that time, Dr. Francis Glorieux, recognized that "the time had come to conduct a complete reevaluation of the society and its goals."

The IBMS board of directors is proportionally chosen according to the society’s worldwide membership — which is mostly split between Europe and North America. If there is a regional bias in the organization it is to non-Americans, since there is great concern that the overwhelming size of the United States could destroy the global character the IBMS seeks to have. Like the AOCFI, the IBMS presidency alternates between North America and Europe. The board has a rotating membership with nominees presented to the worldwide membership for approval at each annual meeting.

International committees report to the board and oversee the development of member products and services, but do not have adequate time to make these committees function properly. Attendance is also a problem since volunteers are expected to donate both their time and travel costs.

During a two-day discussion of the critical internal and external factors affecting IBMS now and in the future, the board concluded that there was indeed a market niche for their association, in spite of the inroads made by other organizations. They reaffirmed their mission and the usefulness of their goals, and developed a list of strategic objectives to be incorporated into an ambitious three-year business plan. As Dr. Glorieux notes however, "The single most important action of the board was its recognition that the organization could no longer be run by volunteers alone and its decision that a full-time professional staff was needed."

Indeed this appears to have made all the difference. Within six months of putting in place a permanent staffing structure membership had increased by 10 percent. By year’s end it had increased by 30 percent.

The World Federation on Osteoporosis

The jury is still out as to whether the WFO will succeed, although it looks increasingly unlikely. It has been a year now since this organization first made the attempt to become global. Nevertheless, there are lessons to be learned from its example.

The WFO was conceived as a global association that would unify a wide variety of similarly-focused national associations worldwide to develop a more global approach to disseminating and coordinating information on the treatment and prevention of osteoporosis. This strategic move was also supported by the World Health Organization in Geneva and number of large pharmaceutical companies.

"There was every incentive to succeed," says Dr. Larry Raisz, who was asked to lead the effort. "The support of the WHO and the pharmaceutical companies assured there would be large sums of money to share amongst all players at the end of the effort. And, to a very real extent, the increased information sharing that would result from the creation of such an organization might well lead to the cure or prevention of this growing disease."

The bylaws that were developed are, in many ways, a model for a global association. The proportionate voting governance structure was particularly important. While China and India would have the largest number of members, Europe and the United States would be contributing the largest amount of financial support — without which the organization could not function. These bylaws went through three drafts before final agreement by all participants.

So why has the WFO not succeeded in its global launch? Ultimately it has been a casualty of the tug of war between the Europeans and the North Americans. Seeing the financial incentive all too clearly, the European and American leaders decided neither wanted to lose control of the organization. To win the financial prizes at stake, North America and Europe were left to divide up the rest of the world.

To date, there is still no global organization unifying the mosaic of associations that currently exists. The WFO stands as living proof that where there is no will, there can be no way.

LESSONS LEARNED

Apart from the observations made in the case studies noted above, what if any lessons can be learned from these examples?

The need for an international organization
While there are certainly reasons to be critical of some of the decisions made by players in the WFO case referenced above, it may not have been in the constituent members’ interests to create a global organization — an international organization was more suited to their needs and sense of priorities. The creation of a global organization is not an end unto itself. There must be a practical benefit in store for all stakeholders.

Where are services best delivered?
In every instance noted above, services are delivered at the national level based on such critical considerations as common history, language, culture, regulations, and legislation — not to mention geography, technology, and infrastructure. Governance structures that ignore this reality are doomed to failure.

Role of the regions
Regional structures can serve as useful tools for building a global organization, but as seen in nearly every example, they can also be a distraction, if not a roadblock.

What constitutes a member?
This is a fundamental question that every organization needs to resolve before it can consider itself a global organization — as opposed to a loose affiliation of organizations.

Funding/financing
If an organization depends overwhelmingly on dues payments to operate, it cannot be expected to function as a global entity. Constituent members are going to count what they get in return for what they pay. Members will almost always perceive they receive less than they are contributing. Over the short term, reliance on a dues-based budget might work — as in the case of Deloitte and Touche — but not for long.

International committee structures — as shown in the Deloitte and IBMS examples — serve as the best tools by which to develop, deliver, and monitor the quality of international products and services — provided they are backed by a full-time, trained staff.

Language/culture
For obvious reasons, this is a critical issue for a global organization. Of the examples given above, Deloitte Touche Tohmatsu developed the most successful approach to solving this issue by assigning international staff to the global headquarters.

Travel costs
Though another real and potentially crippling issue, all successful global organizations recognize that picking up travel costs for staff and volunteers should be a major part of their budgets.

What are the international products and services?
As noted above, global organizations must have definable, tangible, and desired products and services. Without these, there is no need for the organization.

Paid staff vs. volunteers
The number of hours volunteers have to give to nonprofit work is declining. This is a reality in all markets around the world. Volunteers are needed to help define products and services and make key policy decisions, but full-time professional staff are essential to making things run. Without them, as in the IBMS case study above, an organization will wither and die.

Strategic alliances
Strategic alliances have their purposes, especially when an organization is small. They help extend reach and economize resources by avoiding duplication of effort. But strategic alliances are not an end unto themselves. Ultimately an organization needs to own the turf on which it is operating.

Making products available and affordable
Every example above has shown that the volunteer leadership needs to be involved in identifying the products and services the organization offers and ensuring they are adapted and priced for successful use in national markets around the world.

Board
The board needs to be geographically, financially, and intellectually representative of an organization’s membership. And if this means it is too large to function efficiently (all the boards noted in the case studies above are 15 people or less) then there needs to be an executive committee to ensure adequate control and direction of the organization.

It is helpful to have a board of officers that alternates between the geographic regions that are most important to the overall membership. It is also helpful to have a vice chair or a vice president who functions as the president-elect of the organization. Having a "former" president position on the board (as does AOCFI and IBMS) ensures continuity in leadership and may be helpful in avoiding or smoothing over difficulties that arise.

Committees
Committees are an organization’s link to its membership and a critical tool for any global organization. But committees are well known for their inefficiencies. As noted in the IBMS and Deloitte examples above, some of the more common problems associated with committees can be overcome by:

• Only "institutionalizing" those committees essential to the organization’s mission — the rest should have a defined lifespan, after which they disappear;
• Defining their objective(s) and holding them accountable;
• Offering to pay time and travel costs of members — in return for carrying out specific "homework" assignments; and
• Providing adequate staff support to ensure follow-through.

Apart from the observations noted above, these benchmarking examples illustrate that governance issues are critical to the successful creation and operation of a global organization — but they are not the only critical elements. The other elements include: staff, the existence of an overriding purpose; the existence of global products and services; resolution of funding and financing issues; and the simple desire of the various stakeholders to make it work.

"Global localization" is the term Akio Morita, the late founder of Sony Corporation coined. While there are many models to follow in building a global organization, you will know that you have arrived when you can say you have achieved this.