Lack of good governance is the weakest link in most global relationships. Managing relationships to mutual benefit is notoriously difficult. Managing relationships from many time zones away is increasingly so. Webster’s Dictionary defines governance as “the act or process of authoritative direction or control”. We extend this in our context to mean how global initiatives are run – the people, processes, systems and controls. The adoption of globalization has generated significant benefits for US corporations across various industries. At the same time, the rate of adoption has also generated increasing complexity and level of risk associated with leveraging globally dispersed resources. With scale and rapid growth come numerous challenges. Among these challenges are service failures, privacy violations, theft of data and inadequate cost savings to name a few. While such issues are often attributed to lack of capabilities and inconsistent quality on the part of the service provider, one factor that remains underrepresented is proper governance on part of the client. Inadequate attention to governance on the part of client organizations has been the single largest factor contributing to the failure of globalization initiatives.
What does governance enable an organization to accomplish? An effective governance structure enables the organization to ensure that its global initiatives remain aligned to overall corporate strategy. Such a structure also allows an organization to manage expectations and communications between its internal constituents and the service provider or its own global operations. The organization benefits by ensuring that services are delivered effectively, that internal constituents make the right decisions at the right time and that key stakeholders’ expectations for service delivery are managed appropriately.
Governance is not a short-term or stop-gap measure. Ultimately, governance is about alignment, controls and benefits. To craft successful relationships with global vendors and distributed global operations, an organization must put as much effort into designing and implementing the governance structure as into writing the RFP, selecting the supplier, setting up an operation or negotiating the deal.
What type of governance structure should organizations put in place to succeed in globalization and reap the promised benefits? What aspects of governance are most critical to manage? How do leading organizations avoid the value leakage that can occur as a result of poor governance?
In order to manage complexity and risk, organizations need to develop governance structures that span across strategic and tactical elements of the company’s objectives as well as consider key factors that impact overall success. As companies scale their global efforts, there will need to be an increasing amount of attention devoted to ensuring that the right governance structure is implemented to ensure successful outcomes.
This best-in-class governance structure starts with establishing a governance body across three layers: organizational, functional and operational. Further, for the governance body to be successful, the firm needs to ensure internal commitment, a lifecycle commitment, timely decision-making, appropriate staffing and role definitions, leveraging of influencers, investment of time and effort by senior management and finally appropriate budgets. The key components of successful governance also includes six operational components: performance management, financial management, contract management, resource management, relationship management and risk management.
As an example, HSBC was able to establish offshore operations in 10 Asian countries a mere 6 years after opening its first offshore operation in Guangzhou, China. HSBC is yet another excellent example of continued governance commitment from top management as well as from employees across a wide berth of expertise and experience. Today, the group employs more than 18,000 people across Asia, catering to its banking divisions across North America, Europe, Asia-Pacific and the Middle East. A focused and dedicated corporate governance team called the Global Processing Team (GPT) works to continually achieve both strategic and tactical objectives. The GPT evolved from being just a small team reporting to HSBC UK’s Senior Manager for Personal Financial Services, to today becoming a strategic division in itself, reporting directly to the Group CEO.
Finally, good governance will ensure that your global initiatives are not just aligned with your business objectives but also provide an early warning system and ensure excellent return on investment.
