Interview with George G Brenkert on Building Ethical Organizations
August 2009 - By Dr. Nagendra V Chowdary

DR. George G Brenkert
Philips Chair Professor of Human Resource Management,
Director of Centre of Organization and People Excellence,
and Associate Dean at China Europe International Business School (CEIBS), Shanghai,
and People's Republic of China.

Absolutely. By definition, global corporations refer to companies that can leverage best resources around the world to capture growth opportunities globally. As a result, a very large percentage of global corporations need to wrestle with the complexity created by operating in multiple countries or continents that may vary substantially in national cultures, administrative systems (e.g., capitalist or socialistic government), geographical distance/time zones, and levels of economic development.

• Has globalization increased the perplexities of complexities?
  Yes, because it creates pressures for corporations to source materials/ components/products from multiple regions to ensure cost competitiveness on the one hand and create opportunities for corporations to sell their products and services outside their home markets on the other.

• Apart from globalization what other new business realities do you think have heightened the complexities of global corporations?
  The increase in customer sovereignty has forced corporations to customize product/services/solutions around customer needs and preference. As a result, companies need to offer products/services that are distinctly different across different customer segments. This creates complexity not only in product/service offering but also the service and operation infrastructure (e.g., VIP banking for affluent customers is very different from retail banking for mass customers).

  The aspiration of rapid growth in revenue and profit has forced many Asian corporations to diversify into new businesses outside their existing business domains (e.g., into real estate, financial service business, etc.). This also increases the complexity of business operations. Another common avenue is to increase size and scale through merger and acquisition. This will immediately increase complexity of a firm when merging two or three firms with very different organizational cultures and operation infrastructure together.

• Of the two prominent sources of complexities internal and external which one do you think is likely to cause more damage to the companies?
  I think the complexity created by expanded scope (in regions, product/ services, customer segments) is more challenging than the complexity created by scale, especially when the increased scale is achieved through organic growth (instead of mergers and acquisitions).

• Can you share with us a few examples of how global corporations were affected by internal as well as external sources?
  Lenovo is a good example of increasing business complexity due to both expanded scope (i.e., globalization strategy) and expanded scale (i.e., through merger and acquisition). Started with very humble beginning in 1984, Lenovo grew rapidly over the years in Personal Computer (PC) industry in China. By 1996, Lenovo had already become the leading PC firm within China, commanding market share of more than 30%. In the first two decades of the company, its complexity primarily came with expanded scale with more employees and more market penetration within China market.

  After reaching such high level of market share, Lenovo found it increasingly difficult to grow just within PC industry in China. In year 2000, the company started to diversify into other products/service offering, including internet services, software, real estate, etc. Complexity at this stage came from expanded scope through diversification.

  However, in 2003, after several years of diversification, Lenovo found that most of the new businesses they developed were not successful. As a result, the company decided to focus on PC industry again with strong aspiration to grow beyond China market. At this time, IBM tried to divest its PC division and Lenovo responded favorably to IBM proposal. After one year of due diligence and negotiation, the company eventually decided to acquire IBM's PCD in December 2004 with effective date in May 2005. Overnight, Lenovo became a truly global firm with presence in over 100 countries. You can imagine the increased complexity due to expanded scope in multiple countries not only to access new market opportunities but also to tap better or cheaper resources around the world (like R&D talent, manufacturing, procurement). Another complexity is created through the merger and acquisition initiative. In addition to dealing with the increased complexity of business operation, Lenovo also needed to invest tremendous time and efforts to integrate two cultures, two organizational structures, two management teams, and two management systems, that existed in two different companies. You can image the tasks are demanding and risky, as evident in the high failure rate of cross-cultural merger and acquisition initiatives.

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